AvalonBay& Beyond
Annual Report
AvalonBay Communities, Inc., is in the business of developing, redeveloping,
acquiring and managing luxury apartment communities in high barrier-to-entry
markets of the United States. At March 1, 2001, the Company owned or held an
ownership interest in 138 apartment communities containing 40,740 apartment
homes in 12 states and the District of Columbia, of which 12 communities
are under construction and four communities are under reconstruction. More
information may be found on our Web site at www.avalonbay.com.
Revenue(1)
(in millions)
FFO/Share Growth
3-year average
FFO Growth per share is 14.7%
Dividend Growth
$600
$573.4
$3.75
$3.70
$2.25
$2.24
$506.0
$449.1
$3.22
$2.87
400
200
0
98
99
00
2.50
1.25
0.0
$2.06
2.00
$1.95
98
99
00
1.75
98
99
00
1. 1998 Revenues are on a pro forma basis as if the merger of the Company and Avalon Properties, Inc. occurred on 1/1/98.
“
If we were to invent from the ground
up an apartment REIT that is most
fitted for today’s environment, it
would look a lot like AvalonBay! ”
—Lehman Brothers Report, September 18, 2000
A letter
To
We had a great year! During 2000, AvalonBay Communities expanded its
industry leadership position by providing our residents a high-quality living
experience, implementing a carefully considered strategic plan and accelerating
earnings growth. We proudly look back on 2000 as a year in which we:
o Delivered the best total shareholder return of all our apartment REIT peers;
o
o
o
o
Increased our presence in core, high barrier-to-entry growth markets;
Improved our industry leading financial flexibility through successful
self-funding initiatives;
Continued to sharpen and evolve our strategy; and
Implemented management succession to ensure our long-term competitiveness.
Avalon at Cameron Court, Alexandria, VA
We now seek to build on these achievements as we pursue our goal of
becoming an “evergreen” public company. As reflected by our enhanced market valuation, the Company’s performance was recognized
and rewarded by the financial markets. While REITs in general found renewed favor with investors, AvalonBay’s total return for
stockholders of 53 percent in 2000 placed us at the head of the pack among both multifamily REITs and REITs as a whole.
We believe the Company’s success this past year is a result of our allegiance to a proven, forward-looking strategy that has positioned
the Company squarely in the path of opportunity. As a fully integrated real estate organization with local, knowledgeable teams in each
of our targeted markets, we are able to find, secure and successfully execute development opportunities. Our professionals are deeply
embedded in their communities, a factor which often gives us the first look at new development sites, facilitates development approvals,
and helps ensure successful completion of development and redevelopment programs.
Sector-Leading Financial Performance The Company’s Funds From Operations (FFO) per share in 2000 was $3.70, a 14.9 percent
increase over 1999. We experienced strong growth in rental revenues, as same store rents increased by approximately eight percent. We
operated our same store portfolio at 97.7 percent economic occupancy. Same store net operating income (NOI) increased by 10.7 percent.
Over the past five years, the combined Company (Avalon Properties and Bay Apartments) has achieved average annual same store sales
NOI growth of 7.8 percent. These results demonstrate our ability to provide a quality living experience that produces premium rents and
consistently high occupancy levels.
We also benefited from the lease-up of new and redeveloped communities that came on line during the past two years. Earnings
from these communities more than offset the earnings forgone on assets sold, while providing strong growth in our net asset value.
While we continued to increase our common stock dividend, the Company’s payout ratio continued to decline to 60.5 percent of FFO
versus 64.0 percent a year ago. In doing so, we are able to protect the security of the dividend while retaining approximately $90 million in
cash. Our Board of Directors recently approved a 14.3 percent increase in our first quarter 2001 common stock dividend. This increase reflects
our strong earnings growth over the past several years, and we expect double digit dividend growth to continue for the next several years.
2 AVALONBAY
Our Stockholders
Increased Presence in Core Markets
In 2000, we delivered industry-leading value creation with development programs that
achieved initial year yields averaging approximately 11 percent. We completed six development communities, containing more than
1,200 apartment homes, at a total capital cost of $175 million. Examples of new communities that portray our suburban and urban infill
strategies include Avalon Essex, a suburban apartment home community located near employment and retail centers on Boston’s North
Shore, and Avalon on the Alameda, an apartment home community with on-site retailers located in downtown San Jose.
During the year, we started construction on six communities with
1,520 apartment homes, representing a projected total capital investment
of $322 million. We also began four community redevelopment
programs with an incremental investment of $73.5 million. These
investments will restore tired or neglected apartment communities that
we acquired in excellent locations and create value in markets where
development opportunities are difficult to find and underwrite.
We will continue to capitalize on AvalonBay’s development expert-
ise with a very active pipeline for 2001. We expect to complete
construction of six new communities containing more than 1,800 apart-
ment homes with a total investment of $286 million. Our promising
new communities include urban high-rises in New York City, San
Villa Serena, Rancho Santa Margarita, CA
Francisco, Seattle and Washington, D.C. Additionally, we ended 2000 with land under contract and entitlements underway to develop
33 communities containing more than 9,000 apartment homes.
During 2000, we sold eight communities, exiting four non-core markets and selling older, under-performing assets in several core
markets. The $124 million in net proceeds from these transactions have been reinvested in new or redeveloped communities that create
industry leading net asset value growth, as the yields on new investment exceeds the cap rates of communities sold by 250-300 basis points.
Solid Capital Structure Critical to the Company’s success over the past several years has been a conservative, yet flexible, capital
structure. We have learned to “live within our means” by relying primarily on a self-funding strategy to create shareholder value without
accessing outside equity capital. Our asset sales, carefully executed unsecured debt offerings, and internally generated cash of approximately
$90 million in 2000, combined with a measured development pipeline, provide us significant control over our capital requirements.
To complement the cash generated by our asset sales, as well as the availability of the Company’s $600 million unsecured credit line,
we raised $350 million through the sale of unsecured medium term debt during the year. We maintained a favorable average interest rate
of 7.0 percent, and at year-end the average years-to-maturity on our debt was 8.8 years. The range of our debt maturity over the next five
years is between $100 million in 2002 and $150 million in 2006. The Company’s fixed charge coverage ratio—which reflects our ability to
AVALONBAY 3
At AvalonBay, our purpose is to
fund interest expense and preferred dividends through cash flow—was 3.2x, one of the highest in the sector. Our financing strategies
have served both our debt and equity investors well, as we have maintained high investment grade ratings during the capital constrained
environment of the past three years.
Sharpening Our Strategy During 2000, we further refined the focus on targeted high barrier-to-entry markets, which has been an
enduring tenet of the Company’s strategy for more than two decades. As a result of this more precise focus on those markets that exhibit
the best long-term demand and supply fundamentals, we chose to exit the markets of Philadelphia, Richmond, Norfolk and Sacramento.
We are now operating in 19 key markets throughout the country. We believe their strong economic outlook and consistency of
growth provide us reasonable protection during market cycles. In addition, these markets are typically characterized by entitlement and
development approval hurdles that discourage competition and mitigate the likelihood of an oversupply of apartments.
While we are delighted with our success in 2000, our focus now is on meeting the challenges of the coming years and on analyzing
new opportunities. As a result, we have been working on an updated strategic plan that addresses what we believe are important
emerging market trends.
Perhaps the most important of these are the changing demographics and increasing segmentation of our customer. In addition to our
core segment of professional singles and couples, we are addressing the growing sector of empty-nesters who, for lifestyle reasons, are
selling their homes and choosing apartment living. While we believe the high quality living experience found in our communities is
suited to address this increasingly diverse marketplace, we recognize the need to be responsive to emerging segmentation and are
studying a broader range of offerings, including a wider array of floor plans and niche-targeted communities, amenities and services.
Deploying new technology will also play an integral role in the Company’s evolution by helping us further improve returns on our
real estate investments and raise our customer service to a higher level. While we do not view technology as a panacea, we do see it as a
complementary tool we can use to help us work faster, smarter and more efficiently.
A key initiative in this area is Realeum, Inc. (“Realeum”), a venture we created with other leading REITs to develop web-based
operating solutions. Because of the opportunity for and viability of the offering, this industry-backed initiative received outside venture
funding, in essence creating a separate commercial company in which AvalonBay maintains a minority interest. Realeum’s core offering
is Realeum Foundation, formally known as Project Javalon. Key elements will include onsite management tools, apartment revenue
optimization capabilities and web-based marketing and leasing features that are designed to manage our resident relationships from
prospecting through move-out.
Strengthening Our Management Team To ensure the effective implementation of our new strategy and as part of our ongoing
succession planning, in February 2001 AvalonBay promoted Bryce Blair, a 16-year veteran of the Company and our President and Chief
Operating Officer, to the positions of President and Chief Executive Officer, while Dick Michaux will serve as Executive Chairman of
the Board. Bryce has played an integral role in our growth and is leading the development and implementation of our evolving strategic
4 AVALONBAY
“Enhance the Lives of Our Residents.”
initiatives. As part of this transition, Tim Naughton was promoted from Chief Investment Officer to Chief Operating Officer, while Sam
Fuller was promoted to Executive Vice President of Development and Construction and Leo Horey was promoted to Senior Vice President
of Property Operations. All three of these executives have ten or more years of experience with the Company. The fact that we have been
able to promote four AvalonBay veterans to such important positions is a testament to the strength and depth of our organization.
With regret, we announced that Bob Slater, Executive Vice President of Property Operations, will be leaving the Company.
Through his vision, Bob built one of the finest property management operations in the country at AvalonBay, garnering many awards
and accolades. He will be missed for this leadership and the camaraderie he fostered among all of us.
The Company also strengthened its management team through continued efforts to build and enhance key functional areas. By
adding talented executives in areas such as marketing, legal, human resources, market research and technology, we maximize the benefits
of a centralized support structure that services our “local sharpshooters,” who implement property management, development and
construction efforts in our regional office.
A Promising Future The strategic undertakings we have outlined are designed to enhance AvalonBay’s resident-focused industry
leadership position. Our core market strategy, locally based development, construction and property management expertise, and invest-
ment in our support infrastructure, together further our goal of providing a high quality living environment for residents and
maximizing return for stockholders. As we indicated in the guidance we issued at the end of 2000, we are anticipating 2001 will be
another year of solid performance driven by favorable demand/supply characteristics in our markets and the efforts of our resident-
focused associates.
We want to recognize the more than 1,600 members of Avalon Bay’s team who produced such excellent results in 2000. We believe
they provide the foundation and commitment necessary to achieve even greater accomplishments in the coming years and to realize the
Company’s promising future.
In closing, we also want to acknowledge the contributions
of Gilbert “Mike” Meyer, who retired as Executive Chairman
of the Company during 2000. Mike, the founder of Bay
Apartment Communities, is a visionary in our industry and
played a critical role in the successful merger that created
AvalonBay three years ago. Stockholders and management
will benefit from his continuing involvement as a consultant
and member of the Company’s Board of Directors.
We greatly appreciate the support of our stockholders
and will work to continue earning it.
Richard L. Michaux
Executive Chairman of the Board
Bryce Blair
President and Chief Executive Officer
AVALONBAY 5
The Right Market:
Our market strategy targets growth areas both
Urban
Our communities are located in the country’s most vibrant urban and suburban
infill markets where our local “on the ground” teams add value to our strategy.
Avalon at Prudential Center, Boston, MA
6 AVALONBAY
Avalon on the Alameda, San Jose, CA
&Suburban
Proving the wisdom of “right place, right time,” AvalonBay’s success demonstrates the value of a strategy that is steadfastly focused on high
barrier-to-entry suburban and urban infill markets with solid and growing economies.
This approach maximizes the benefits of our local expertise and enables us to establish the strong brand identity and market presence that
create market leadership. This strategy also serves our financial goals by making it possible to realize significant operating efficiencies.
While these markets are geographically diverse, they share the attributes of long-term business and employment expansion and of serving
the global economy through export of technology and financial services. They have also been among the country’s most supply constrained
markets, with housing starts not keeping pace with their growth. This creates an imbalance in housing
demand and supply, leading to higher market rental rates.
The high cost of home ownership in our markets also enhances our business opportunity by making
apartment living a more economically viable alternative. For example, industry analysts estimate that on
average only 50 percent of the households in our markets can afford home ownership versus 63 percent
nationwide. In some of our markets it is actually less than 20 percent. In addition, young professionals and
empty-nesters—the growth drivers of the upscale market segments we seek to dominate—are the fastest
growing population sectors in these markets.
Our prospects for continued success are further enhanced because many of these markets present
significant challenges to the development of multifamily housing. Land zoned for apartments is often limited
and the approval process is formidable. Where some companies see obstacles, however, our knowledgeable,
on the ground development teams see opportunities to create long-term value.
Avalon at Florham Park, Florham Park, NJ
AVALONBAY 7
The Right Product:
Our communities provide a quality living experience on the
Inside
We bring substance to our purpose by building superior, well-located communities
that stand the test of time and provide our residents the gift of time.
Our communities are fresh and contemporary—at an average of six years, our
portfolio is one of the “youngest” in the industry. We were ahead of the curve in antici-
pating increased consumer demand for a more convenient living experience and, as a
result, our communities are located near centers of employment, shopping, transporta-
tion, arts and entertainment. In addition, our communities offer a range of on-site
amenities, which frequently include business centers, workout facilities and retail
services—such as dry cleaning and restaurants—that provide additional convenience for
our residents.
As our markets continue to grow and experience more segmentation, we are
Avalon at Essex, Peabody, MA
exploring opportunities to provide new and more targeted product offerings, such as
communities developed specifically for empty-nesters returning to the carefree apartment lifestyle.
Having the right product, however, goes beyond desirable locations and convenient amenities. It means continually improving services
that meet the evolving needs of our residents. Future offerings may include concierge services, on-line acceptance of maintenance requests and
high-speed broadband Internet access. By anticipating changes in resident expectations and desires, we ensure that our communities remain
vibrant, desirable residences of choice for our target customers.
8 AVALONBAY
&Outside
By building superior communities and offering desirable amenities,
our communities enhance the lives of our residents.
Avalon Cove, Jersey City, NJ
Avalon at Parkside, Sunnyvale, CA
AVALONBAY 9
The Right Customer:
Our residents want a place where they can both
Stop
Through convenient locations and our ability to offer a high quality living
experience, our communities address the professional and personal lifestyle
needs of our residents—ensuring that their time with us is Time Well Spent™.
10 AVALONBAY
Avalon View, Wappinger Falls, NY
&Go
Our core customers continue to be young professional singles and
couples, many of whom can afford to own their home, but who chose to rent
for lifestyle reasons. In addition, we are addressing a growing customer
segment comprised of empty-nesters who are selling their homes and
seeking apartment living as a lifestyle choice. In fact, these “discretionary
renters” represent the fastest growing segment of the rental housing market.
They are attracted to AvalonBay’s communities because we provide more
than just shelter. Through thoughtful service, high quality amenities and
convenient locations near centers of arts, entertainment and shopping, we
strive to give our residents the gift of time—time to play, time to work, time
to indulge.
By targeting this discretionary sector of the rental market and meeting their needs through a superior offering of both product and
services, we command premium rents, achieve more consistent occupancy levels and generate greater returns for our stockholders.
We recognize, however, that the apartment market continues to evolve and that consumer dynamics change. To ensure that we are staying
ahead of emerging trends and continually increasing our understanding of consumers, we are making greater use of resident satisfaction
surveys and focus groups. Information gathered in these efforts is being used to more closely hone our service offerings, resident amenities and
other features of our communities. The end result: We want our residents to look back at the time spent with AvalonBay as Time Well Spent™.
AVALONBAY 11
The Right Team:
Our associates keep giving their all both
Here
Engendering a commitment to our purpose throughout the organization has been fundamental to the
Company’s growth and ability to generate a sector leading performance.
We have continued to enhance our corporate management team by bringing in executives who can provide
strategic input along with expertise in areas such as marketing, human resources, legal, market research and
technology. These steps have created bench strength and a centralized support infrastructure to serve our local
market organizations so they can concentrate on developing excellent communities and delivering a high level
of resident satisfaction.
The success of our “local sharpshooter” strategy is predicated on using “asset teams” comprised of highly
trained and experienced professionals native to the regions in which they work and who possess strong local
market knowledge. Additionally, effective training and personal development efforts, combined with per-
formance-based compensation programs, create resident-focused associates who are motivated by professional
growth and a desire to provide maximum value to the Company. The execution that occurs at each of our communities is the greatest
validation of management’s attention to the development of AvalonBay’s human resources.
We outpace the competition by combining centralized support in areas such as strategic guidance, capital allocation, technology, training,
legal, marketing and public relations, with decentralized delivery through local management teams. This not only results in service that exceeds
residents’ expectations and ensures our success today, but also creates an organization that can capitalize on the opportunities of tomorrow.
12 AVALONBAY
&There
AvalonBay’s highly professional and dedicated associates fulfill our
promise to residents and drive our industry leading performance.
AVALONBAY 13
The Right Philosophy:
AvalonBay, a great and lasting company for
Now
With a foundation comprised of strong and enduring
principles and a team of dedicated associates, we enhance our
opportunities for success both today and in the future.
14 AVALONBAY
&Always
The success of the past year and optimism about the future as outlined in this report are grounded in a management philosophy that
balances opportunity and risk. We do not pursue short-term gains that put our stockholders’ investments or associates’ futures in jeopardy. Our
goal is to be an “evergreen” company with a strong corporate culture predicated on enduring core values that guide our Company and foster
associates who embody these values.
We further recognize that building a company for the long term occurs when there are
disciplines in place that maximize the value of high-growth markets, yet minimize the exposure
to the cyclicality of those regions and of the overall economy. As a result, an integral element of
management’s planning process is a proactively managed series of safeguards intended to reduce
the impact of economic, real estate or financial market cycles on the Company. This system of pro-
prietary metrics not only helps us anticipate a downturn and make necessary operating
adjustments, but also puts us in a more advantageous position when a recovery occurs.
The management philosophy that guides AvalonBay is designed to build long-term value for
residents, stockholders and associates. This philosophy will enhance our opportunity to achieve
managed growth through all phases of economic cycles and changes in management, and is
designed to provide for success in perpetuity.
Avalon Riverview, Queens, NY
AVALONBAY 15
Corporate Information
Board of Directors
Bruce A. Choate
Chief Financial Officer
Watson Land Corporation
Michael A. Futterman
Chairman
American Realty Capital, Inc.
John J. Healy, Jr.
Founder and President
Hyde Street Holdings, Inc.
Gilbert M. Meyer
Founder and President
Greenbriar Homes Communities, Inc.
Richard L. Michaux
Executive Chairman of the
Board of Directors
AvalonBay Communities, Inc.
Brenda J. Mixson
Former Executive Vice President
Capital Thinking, Inc.
Lance R. Primis
Managing Partner
Lance R. Primis & Partners, LLC
Allan D. Schuster
Private Investor
Officers
Richard L. Michaux
Executive Chairman of the
Board of Directors
Bryce Blair
Chief Executive Officer and President
Timothy J. Naughton
Chief Operating Officer
Samuel B. Fuller
Executive Vice President
Development / Construction
Thomas J. Sargeant
Executive Vice President
Chief Financial Officer and Treasurer
Leo S. Horey
Senior Vice President
Property Operations
James R. Liberty
Senior Vice President
Construction
Charlene Rothkopf
Senior Vice President
Human Resources
Matthew H. Birenbaum
Regional Vice President
Development
Gwyneth Jones Coté
Regional Vice President
Property Operations
Lili F. Dunn
Regional Vice President – Investments
Daniel E. Murphy
Regional Vice President
Development / Acquisitions
Tracey B. Appelbaum
Vice President
Development
Miguel A. Azua
Vice President
Controller
David W. Bellman
Vice President
Construction
Walter W. Braun
Vice President
Construction
Shannon E. Ford
Vice President
Property Operations
Mark J. Forlenza
Vice President
Development
Frederick S. Harris
Vice President
Development
Dirk V. Herrman
Vice President
Chief Marketing Officer
Andrew C. Kilbourne
Vice President
Special Technology Initiatives
David L. Kirzinger
Vice President
Property Operations
Lyn C. Lansdale
Vice President
Ancillary Services
Joanne M. Lockridge
Vice President
Finance
William M. McLaughlin
Vice President
Development
J. Richard Morris
Vice President
Construction
Edward M. Schulman
Vice President
General Counsel and Secretary
Timothy J. Stanley
Vice President
Development / Acquisitions
Gary S. Steinfield
Vice President
Development
Bernard J. Ward
Vice President
Property Operations
James R. Willden
Vice President
Engineering
Stephen W. Wilson
Vice President
Development
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San Francisco, CA
4340 Stevens Creek Boulevard,
Suite 275
San Jose, CA 95129-1148
(408) 983-1500
Phone:
(408) 984-7060
Fax:
Seattle, WA
11808 Northup Way, Suite W311
Bellevue, WA 98005
Phone:
Fax:
(425) 576-2100
(425) 576-8447
Wilton, CT
15 River Road, Suite 210
Wilton, CT 06897-4064
(203) 761-6500
Phone:
(203) 761-6575
Fax:
Woodbridge, NJ
Woodbridge Place
517 Route One South, Suite 5500
Iselin, NJ 08830
Phone:
Fax:
(732) 404-4800
(732) 283-9105
AvalonBay Offices
HEADQUARTERS
Washington, DC
2900 Eisenhower Avenue,
Suite 300
Alexandria, VA 22314
Phone:
Fax:
(703) 329-6300
(703) 329-1459
REGIONAL OFFICES
Boston, MA
1250 Hancock St., Suite 804N
Quincy, MA 02169
Phone:
Fax:
(617) 472-9491
(617) 472-5553
Chicago, IL
1420 Kensington Road, Suite 108
Oak Brook, IL 60523
Phone:
Fax:
(630) 574-0124
(630) 574-0150
Newport Beach, CA
4440 Von Karman Avenue,
Suite 300
Newport Beach, CA 92660
Phone:
Fax:
(949) 955-6200
(949) 955-6235
New York, NY
535 Fifth Avenue, 18th Floor
New York, NY 10017
Phone:
Fax:
(212) 370-9269
(212) 370-1511
Transfer Agent
First Union National Bank
Charlotte, North Carolina
Form 10K
A copy of the Company’s annual report
on Form 10-K as filed with the
Securities and Exchange Commission
is being mailed to stockholders with
this Annual Report. Additional copies
may be obtained without charge by
writing to:
Investor Relations
AvalonBay Communities, Inc.
2900 Eisenhower Avenue
Suite #300
Alexandria, Virginia 22314
Stock Listings
NYSE – AVB
PCX – AVB
This Annual Report, including the Letter to
Stockholders, contains “forward-looking statements”
within the meaning of the Securities Act of 1933 and
the Securities Exchange Act of 1934. Please see our
Report on Form 10-K, including the section titled
“Forward-Looking Statements,” for a discussion
regarding risks associated with these statements. The
Report on Form 10-K also contains explanations
regarding the meaning of various industry terms
used in this Annual Report, including “funds from
operations,” and we recommend that readers review
the Report on Form 10-K.
2900 Eisenhower Avenue o Suite 300 o Alexandria o VA 22314
www.avalonbay.com