2 0 0 8 A N N U A L R E P O R T
Built to Endure
e
g
a
p
d
n
a
,
s
m
r
e
t
d
e
n
fi
e
d
d
n
a
s
e
t
o
n
r
o
f
3
1
e
g
a
p
e
e
S
h
p
a
r
g
e
c
n
a
m
r
o
f
r
e
p
k
c
o
t
s
r
a
e
y
5
r
o
f
5
1
s
t
H
g
i
l
H
g
i
H
l
a
i
c
n
a
n
i
F
AvalonBay Communities, Inc. is an equity REIT primarily engaged in developing, redeveloping, acquiring, and
managing quality apartment communities in high barrier-to-entry markets within the United States. Our markets
are located in the Northeast, Mid-Atlantic, Midwest, Pacific Northwest, and Northern and Southern California
regions. At year-end 2008, our total market capitalization was $8.3 billion. Over the last ten years, our total
shareholder return averaged 11.1% per year, and the growth rate of our dividend averaged 6.2% per year during
the same time period. Our time-tested strategy is to more deeply penetrate our chosen markets with a broad
range of products and services and an intense focus on our customer.
AvalonBay Communities common shares are traded on the New York Stock Exchange under the ticker symbol
AVB and are included in the S&P 500 Index. More information about AvalonBay may be found on our website at
www.avalonbay.com.
TOTAL SHAREHO L DER RE TUR N (1)
NAV P ER SHARE GRO WTH (2)
FFO PER SHARE G ROWTH (3)
TOTAL SHAREHOLDER RETUR N (1)
6.0%
NAV PER SHARE GROWTH (2)
FFO PER SHARE GROWTH (3)
e
t
a
R
h
t
w
o
r
G
l
a
u
n
n
A
d
n
u
o
p
m
o
C
10.0%
5.0%
0.0%
-5.0%
-10%
%
7
.
8
%
2
.
4
%
4
5
-
.
%
5
7
-
.
e
t
a
R
h
t
w
o
r
G
l
a
u
n
n
A
d
n
u
o
p
m
o
C
12.0%
6.0%
0.0%
-6.0%
-12%
e
t
a
R
h
t
w
o
r
G
l
a
u
n
n
A
d
n
u
o
p
m
o
C
%
2
.
6
-
%
0
.
9
-
3-Year
10-Year
3-Year
%
4.0%
1
.
1
1
2.0%
0.0%
%
9
.
8
%
9
.
3
%
6
0
-
.
-2.0%
10-Year
3-Year
10-Year
e
t
a
R
%
h
t
6
w
3
o
r
G
.
l
a
u
n
n
A
d
n
u
o
p
m
o
C
10.0%
5.0%
%
9
.
0
0.0%
-5.0%
-10%
%
7
.
8
%
2
.
4
%
4
.
5
-
%
5
.
7
-
3-Year
10-Year
3-Year
10-Year
e
t
a
R
h
t
w
o
r
G
l
a
u
n
n
A
d
n
u
o
p
m
o
C
6.0%
4.0%
2.0%
0.0%
-2.0%
%
9
.
3
%
6
.
0
-
%
6
.
3
%
9
.
0
AVB Multifamily Sector Avg.
Source: SNL Financial, Green Street Advisors
AVB Multifamily Sector Avg.
AVB Multifamily Sector Avg.
Source: SNL Financial
AVB Multifamily Sector Avg.
AVB Multifamily Sector Avg.
Source: SNL Financial, Green Street Advisors
Source: SNL Financial, Green Street Advisors
Source: SNL Financial, Green Street Advisors
%
1
.
1
1
%
9
.
8
e
t
a
R
h
t
w
o
r
G
l
a
u
n
n
A
d
n
u
o
p
m
o
C
12.0%
6.0%
0.0%
-6.0%
-12%
%
2
6
-
.
%
0
9
-
.
3-Year
10-Year
AVB Multifamily Sector Avg.
Source: SNL Financial
COVER: AVALON DANVERS, MA
ThIS PAgE: AVALON ENCINO, CA
Built to
Endure
F O R O U R
S hA R EhO L D E R S
A N D O U R
CU S T O M E R S
AVALONBAY COMMUNITIES, INC. 1
2 AVALONBAY COMMUNITIES, INC.
A v Al o n S hAr o n , mA
t o o u r
Shareholders
I t was an extraordinary year. In the public real estate and capital markets, the
credit and capital crisis that sharply accelerated in September. There was no
early expectation of a modest economic downturn was swept away by the
safe haven, as every asset class was hit in the financial storm: the S&P 500 Index
declined 38% and the Morgan Stanley REIT Index declined 38%. AvalonBay was not
spared, as Total Shareholder Return fell 33%.
The early read on 2009 suggests this downturn is far from over and well-functioning
capital markets may be many months away. In times of economic stress, the quality of
a business strategy, a balance sheet and a management team can be tested. In hind-
sight, it leads an investor to ask: how did your company endure under the extreme
financial stress presented during the year? how well did management respond?
Addressing these questions underscores the durability of our time-tested strategy
and cycle-seasoned management team. It’s why our theme this year is: Built to En-
dure. In this letter, we’ll review our achievements and disappointments during 2008
and how we are responding to the challenges ahead. In these difficult times, our
commitment to a strategy to more deeply penetrate our chosen markets with a broad
range of products and services and an intense focus on our customer endures.
2008 In Review
Last year’s theme, ‘Excellent Execution’, was particularly appropriate when looking
at our accomplishments in 2008.
Property level operating results were largely in line with our original financial out-
look provided in February - a pleasing accomplishment given the external forces
that could have caused us to miss our operating targets. Net Operating Income
(NOI) from our Same Store portfolio increased 3.6%, driven by revenue growth of
3.1% and modest expense growth of 1.9%.
Our earnings were not completely spared from the onset of the credit crisis, as
we decided to abandon a number of planned developments, incurring impairment
charges and severance costs. The result was a decrease in Funds from Operations
(FFO) of $0.54 or 12% for 2008. Absent these non-routine (largely non-cash) charges,
FFO for the year increased 9%.
In terms of investment and capital activity, we enjoyed excellent and timely execu-
tion - made even more important given the events that unfolded during the second
half of the year. We delivered a record amount of new apartments. Asset sales were
well timed - being completed before the financial crisis was in full force. We sourced
STRATEgY
PRODUCTS
ORgANIZATION
FINANCIALS
BuIlt to
EnduRE
AVALONBAY COMMUNITIES, INC. 3
liquidity early in the year at attractive costs, raising a significant amount of capital in
one of the most challenging financing environments we’ve ever seen.
The following are highlights of our 2008 investment activity:
• We started six communities for a total budgeted cost of $490 million. This was
half the level we anticipated at the beginning of the year, reflecting discipline
in reducing capital commitments in a capital-constrained environment. For
communities we did start, we achieved savings from the originally contracted
values by going back to subcontractors and renegotiating costs.
• We delivered 13 communities containing over 4,000 apartment homes with
a Total Capital Cost of $1 billion. This was a record volume of development that, in
total, was delivered on budget.
• We sold 11 assets for a total of $650 million, generating an Economic gain
of $230 million and a 14.1% Unleveraged IRR on our investment. The Weighted
Average Initial Year Market Cap Rate of 5.1% on these transactions is a remark-
able achievement given a difficult transaction environment and confirms the
value created through our investment activities. A special dividend of $1.81
per share was declared by our Board to distribute excess income attributable to
gains on these asset sales.
• We expanded our redevelopment activity, completing the renovation of two
wholly-owned communities and starting redevelopment of four wholly-owned
communities. Reinvesting in our assets ensures they are well-maintained and
well-positioned to meet the needs of our customers.
Importantly, we took aggressive actions to ensure we have liquidity needed to meet
our capital requirements over the next 24 months:
• By year-end, we had sourced $2 billion of capital. In addition to proceeds from
our disposition program described above, we sourced $830 million in secured
debt, $330 million in unsecured debt and $180 million in equity commitments
raised for our second discretionary institutional investment management fund.
• We lowered our cost of debt by repaying over $270 million with a weighted average
rate of 7.3%, while sourcing $700 million in fixed rate debt with a weighted average
interest rate of 5.4%. These transactions lowered our costs while extending the
maturity duration. Finally, we rebalanced our debt and preferred levels by redeem-
ing $100 million of 8.7% preferred stock.
In a volatile credit environment with diminished liquidity options, these are impor-
tant accomplishments and an effective use of the financial flexibility offered by a
strong and largely unencumbered balance sheet.
A v Al o n M e y d e n bAu e r , w A
4 AVALONBAY COMMUNITIES, INC.
Strategy
B u i l t t o e n d u r e :
our time-tested strategy has delivered long-
term performance near the top of the sector
in earnings growth, nAv, dividends and total
Shareholder return. A proven business mod-
el and an executive management team av-
eraging 20 years experience with AvalonBay
positions us to manage near-term challenges
while taking advantage of opportunities -- en-
abling us to ultimately emerge an even stron-
ger company.
OUTSIZED DIVIDEND GROWTH(4)
DECREASING RENTAL DEL IVERIES (5)
h
t
w
o
r
G
8
0
0
2
-
8
9
9
1
90%
75%
60%
45%
30%
15%
0%
83.1%
31.5%
)
s
d
n
a
s
u
o
h
t
n
i
(
l
s
n
o
i
t
e
p
m
o
C
t
e
N
200
160
120
80
40
0
1.2%
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
y
r
o
t
n
e
v
n
I
/
s
n
o
i
t
e
p
m
o
C
t
e
N
l
AVB Multifamily Sector Avg.
2007
2008
2009(E)
2010(E)
2011(E)
Source: Company Reports, SNL Financial
Net U.S. Rental Completions New Completions as % Rental Inventory
Source: Witten Advisors
AVALONBAY COMMUNITIES, INC. 5
The culmination of successful investment and capital activity is how we return capi-
tal to investors - as measured by dividend history. The quality and durability of our
dividend has always been a hallmark of our company. In 2008, we declared the
largest absolute level of dividends ever – including a special dividend of $1.81 per
share – while maintaining one of the strongest balance sheets in the REIT industry.
Our dividend has always been covered by recurring cash flow and has increased 80%
over the last ten years – more than twice the sector average.
the Economy and Apartment Fundamentals
The economic environment in 2008 was fueled by uncertainty, as one historic event
cascading over another in just a few weeks significantly changed the economic
landscape. The recession, once confined to housing and finance-related industries,
broadened. The U.S. and other governments stepped in, taking aggressive actions
to unlock the credit markets and to spur job growth. It will take time to see results,
and we don’t expect employment growth – an important driver of apartment de-
mand – to return to our markets in 2009.
A v Al o n t o w e r s o n t h e p e n i n s u lA, C A
primarily demographics driving demand and credit constraints limiting supply. De-
There are a number of mid to long term fundamentals impacting rental housing,
mographics continue to favor renting. The 25-34 year old age segment has one of
the highest renter propensities and is projected to increase by four million between
now and 2015. This is a ten-fold increase in growth over the previous seven-year
period. Many would-be home buyers in this age segment will likely remain renters
given current consumer sentiment toward owning a home as an investment. Tighter
credit and a renewed emphasis on saving are also expected to limit demand for
new home sales.
Financing constraints and a weak economy are expected to reduce new rental con-
struction over the next several years. Total multifamily construction starts issued in
the fourth quarter of 2008 were 50% below the peak reached in early 2006. Fewer
starts translate into fewer deliveries and less new competitive supply. Several third
party sources are projecting steep declines in rental deliveries for 2010, setting the
stage for a potentially robust apartment recovery when the job market inevitably
rebounds.
The nationwide home ownership rate at the end of 2008 reached its lowest level
since 2000, creating thousands of new renter households. We expect to continue to
benefit from declining home ownership in 2009, but this alone will not create suf-
ficient demand to overcome employment losses.
looking Forward
We expect 2009 will be a tougher operating and investing climate as revenue and
NOI from operating communities will likely decline. We do not anticipate starting
any new development during the first half of 2009. Any development starts in the
second half of this year will be based on our assessment of economic and capital
market conditions at that time.
6 AVALONBAY COMMUNITIES, INC.
A p o r t f o l i o o f
Products and
Services
B u i l t t o e n d u r e :
We own and operate over 50,000 apartment
homes in the nation’s most supply-constrained
markets. Staggered lease terms minimize ex-
posure at any one time of the year and provide
stability to both operations and cash flow. tight
controls have kept operating expense growth
well below the sector average over the last
four years.
FAVORABLE DEMOGRAPHICS
CONTROLLING EXPENSES(6)
4.0
)
s
n
o
i
l
l
i
m
n
i
(
t
n
e
m
g
e
S
e
g
A
5.0
4.0
3.0
2.0
1.0
0
0.4
%
h
t
w
o
r
G
e
s
n
e
p
x
E
g
n
i
t
a
r
e
p
O
.
g
v
A
8
0
0
2
-
4
0
0
2
4.0%
3.0%
2.0%
1.0%
0%
3.4%
2.1%
2000-2007 2008-2015
AVB Multifamily Sector Avg.
Source: Census Bureau, National Multi-Housing Council
Source: Green Street Advisors, SNL Financial
AVALONBAY COMMUNITIES, INC. 7
l
d
o
-
r
a
e
Y
4
3
-
5
2
h
t
w
o
r
G
n
o
i
t
a
u
p
o
P
l
Downturns are an inevitable part of the business cycle. Their impacts cannot be
avoided, but they can be mitigated. It is often said that the best test of management
and of management’s strategy is how a company performs through all phases of the
business cycle. Our executive management team has an average of 20 years experi-
ence with AvalonBay, and we’re responding to the current downturn by relying on
the attributes of our business which have endured through the years:
Operations: Enduring Focus
Last year, we generated cash flow from 100,000 residents in 50,000 apart-
ments - a large, diversified lease profile with historically low default risk.
Over the last four years, growth in operating expenses was well below the
sector average.
Innovation helps keep costs in check. During 2008, we opened our Customer Care
Center (CCC) in Virginia Beach, VA to centralize certain accounting and administra-
tive functions formerly the responsibility of on-site community associates. A facility
unique to our sector, we started the year with functions transferred from 20% of our
communities and ended the year with 80% on-board. We’re pleased to report that
we realized significant cost savings while improving service to our residents.
Asset Management: Enduring Value
Our portfolio is among the youngest in our sector. While this keeps our average
per-home capital expenditure comparatively low, we remain focused on the need to
maintain our assets and position them for the changing needs of our customers. At
a time when cost pressures may force some operators to defer maintenance, strong
cash flow enables us to continue to maintain our communities to high standards
and improve their competitive position.
We also are investing significantly in redevelopment opportunities during 2009. Up-
grades such as kitchen and bathroom overhauls, carefully planned based on custom-
er research and competitive positioning, can provide outsized returns with reduced
risk. As an example, our Avalon Redmond community sold last summer for an Un-
leveraged IRR of 15% after a moderate redevelopment program. Over the four years
we held this asset, revenue growth was 48% and NOI growth was 72%.
Development Activities: Enduring Excellence
Our Avalon Danvers community, shown on the front cover and located on Boston’s
North Shore, received the ‘Project of the Year’ award last year from Multifamily Ex-
ecutive. This community, which included redevelopment of a prominent historic
landmark, enhances our reputation as the leading developer of a broad range of
high-quality rental product.
Our recent decision to reduce development starts and reduce our pipeline by 40%
was prudent, and resulted in a reduction in our development and administrative
staff. We have a long track record of value creation through new development. While
we have re-sized our development pipeline and support team, we’ve retained our
core productive capacity to create value through new development when invest-
ment opportunities emerge.
A v Al o n F As h i o n v Al l e y , C A
8 AVALONBAY COMMUNITIES, INC.
Balance Sheet
B u i l t t o e n d u r e :
our solid financial position is evidenced by
the best balance sheet in the apartment sec-
tor and among the best in the industry. With
approximately 100 unencumbered apartment
communities available for future secured fi-
nancing activity, we could add over $2 billion
of debt to our balance sheet and still be with-
in debt covenants.
LOWER LEVERAGE
MANAGEABLE DEBT MAT URITIES
57.9%
44.0%
n
o
i
t
a
z
i
l
a
t
i
p
a
C
l
a
t
o
T
/
t
b
e
D
l
a
t
o
T
75%
50%
25%
0%
s
n
o
i
l
l
i
m
n
i
$
$700
$600
$500
$400
$300
$200
$100
$0
2
0
5
$
4
1
5
$
2
2
4
$
6
4
3
$
0
1
3
$
AVB Multifamily Sector Avg.
2009 2010 2011 2012 2013
Source: SNL Financial
Source: Company Reports
AVALONBAY COMMUNITIES, INC. 9
A v Al o n W Ar n e r plA c e , c A
10 AVALONBAY COMMUNITIES, INC.
Balance Sheet: Enduring Strength and Flexibility
Our solid financial position is evidenced by the strongest balance sheet in the apart-
ment sector and one of the strongest in the industry. Adjusting for non-routine
charges and the special dividend, our financial metrics are strong (as of December
31, 2008):
•
•
•
•
Leverage of 44%
NOI from unencumbered assets of 77%
Dividend Payout ratio of 71%
Interest Coverage of 3.8x
We have capital committed or identified to complete the construction and lease-up
of 14 apartment communities currently underway as well to as fund all debt maturi-
ties scheduled for 2009 and 2010. We will seek to continue building liquidity for an
extended duration, arranging additional financings to add to the current level of
committed capital. With approximately 100 unencumbered apartment communities
at year end available for future secured financing activity, we could add over $2 bil-
lion of debt to our balance sheet and still be within debt covenants. Finally, we will
maintain staggered debt maturities and use floating rate debt as appropriate to help
offset the risk of declining operating fundamentals.
In Conclusion
A v Al o n l yn d h u r s t , n J
Past experience reminds us that strong companies become stronger from economic
LONG -TERM OU TPER FOR MANCE (1,2,3)
downturns and are able to seize opportunities as they surface. We are at a point in
the economic cycle where value can be created by those with strong financial posi-
tions and proven business models. given the soundness of our strategy, our solid
financial foundation, and a stable, cycle-tested management team, we expect to
emerge from this downturn an even stronger company in an enhanced competitive
position. The near-term outlook is challenging, but we will work through this down-
turn with the benefit of a proven business model that is Built to Endure, one that
has delivered total shareholder return and NAV growth near the top of the sector
for over ten years.
e
t
a
R
h
t
w
o
r
G
l
a
u
n
n
A
d
n
u
o
p
m
o
C
r
a
e
Y
-
0
1
12%
10%
8%
6%
4%
2%
0%
Once again, I want to thank our shareholders for their continued support, our as-
sociates for their extraordinary efforts and our residents who continue to make an
AvalonBay community their home.
%
1
.
1
1
%
9
.
8
%
7
8
.
%
2
4
.
%
6
.
3
%
9
.
0
FFO
NAV
TSR
AVB Multifamily Sector Avg.
Source: Green Street Advisors, SNL Financial
BRYCE BLAIR
ChAIRMAN & CEO
AVALONBAY COMMUNITIES, INC. 11
AvalonBay Communities, Inc. 11
12 AVALONBAY COMMUNITIES, INC.
A v Al o n A t cAh i l l p Ar k , cA
NOTES
1.
Total Shareholder Return: The change in value over the period stated with all dividends reinvested. Total Shareholder Return is sometimes presented as the compound annual
growth rate. The Total Shareholder Return for each year within the timeframe presented may vary.
2.
Estimated NAV per Share growth: The compound annual growth rate of Estimated NAV per Share as estimated by green Street Advisors, Inc. during the periods indicated. Estimated
NAV per Share growth for each year within the timeframe presented may vary.
3.
FFO per Share growth: The compound annual growth rate of FFO per Share as reported during the period stated. FFO per Share growth for each year within the timeframe presented
may vary. See page 15 for 10 year FFO reconciliation.
Includes dividends declared for each quarter of the ten years presented, benchmarked at 0% for 1998.
Net Completions defined as new rental deliveries net of obsolete units and condominiums.
Operating Expense growth: Operating expense growth for the same-unit pool as reported by green Street Advisors, Inc. Full year change is based on the average of the four
quarters for each year, to reflect the changes in properties included in same-unit results.
4.
5.
6.
TABLE OF CONTENTS
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
34
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Discosures About Market Risk
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Consolidated Financial Statements
36
39
60
62
F-3
Form 10-K Page
DEFINITIONS AND RECONCILIATIONS OF NON-gAAP FINANCIAL MEASURES AND OThER TERMS
This Annual Report 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. The definitions of non-gAAP financial measures and other terms not
included below (Funds from Operations, Net Operating Income, Established/Same Store Communities) are contained in our Annual Report on Form 10-K.
Net Asset Value (NAV) Per Share
The estimated market value of a company’s assets less the estimated market value of all current and long-term liabilities divided by the number of outstanding common shares and operating
partnership units.
Interest Coverage
EBITDA from continuing operations, excluding land gains and gain on the sale of investments in real estate joint ventures, 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. EBITDA has been adjusted in the reconciliation
below to exclude $71,198,000 of non-routine charges. A reconciliation of EBITDA and a calculation of Interest Coverage for the fourth quarter of 2008 are as follows (dollars in thousands):
Net income
Interest expense, net
Interest expense (discontinued operations)
Depreciation expense
Depreciation expense (discontinued operations)
Non-routine items
EBITDA (adj. for non-routine items)
EBITDA from continuing operations (adj. for non-routine items)
EBITDA from discontinued operations
Interest expense, net
Dividends attributable to preferred stock
Interest charges
Interest coverage
$2,123
29,256
178
50,955
—
71,198
$153,710
$126,096
27,614
$29,256
3,929
$33,185
3.8
AVALONBAY COMMUNITIES, INC. 13
AvalonBay Communities, Inc. 11
Initial Year Market Capitalization Rate (Cap Rate)
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. 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 a 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 Market Cap Rate is weighted based on the gross sales price of
each community. Projected stabilized rental revenue represents management’s estimate of projected gross potential (based on leased rents for occupied homes and market rents, 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.
Leverage
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 December 31, 2008 is as follows (dollars in thousands):
Total debt
Common stock
Preferred stock
Operating partnership units
Total debt
Total Market Capitalization
$ 3,676,492
4,671,927
—
1,177
3,676,492
8,349,596
Debt as % of capitalization 44.0%
Because Leverage changes with fluctuations in the Company’s stock price, which occur 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.
Multifamily Sector Average
The Multifamily Sector Average is a weighted average based on Total Capitalization per SNL Financial. The weighted average for Total Shareholder Return, Operating Expenses and Common
Dividend growth per Share includes AEC, AIV, BRE, CPT, EQR, ESS, hME, MAA, PPS and UDR. The weighted average for FFO per share includees AEC, AIV, BRE, CPT, EQR, ESS, hME, MAA and
UDR. The weighted average for Estimated NAV per Share growth includes all companies under green Street Advisors, Inc.’s coverage for which data is available during each of the time periods
presented and includes AEC, BRE, CPT, EQR, PPS and UDR.
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.
Economic gain
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 understand the relationship
between the cash proceeds from a sale and the cash invested in the sold community. A reconciliation of Economic gain to gain on sale in accordance with gAAP for the full year 2008 is
presented below (dollars in thousands):
Number of
Communities Sold(1)
11 Communities
gross Sales
Price
$646,200
gAAP gain
$288,384
Accumulated
Depreciation
and Other
$56,469
Economic
gain
$231,915
(1) Activity includes $3,483 related to the sale of a community held by the Fund in which the Company holds a 15.2% equity interest. Amounts exclude dispositions to joint venture entities
in which the Company retains an economic interest.
Dividend Payout Ratio
The percentage of earnings paid to shareholders in dividends, calculated as the yearly dividend per share divided by FFO per share adjusted for non-routine items for 2008. The payout ratio
provides an idea of how well earnings support the dividend payments.
Unleveraged IRR
Refers to the internal rate of return on sold communities 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.
14 AVALONBAY COMMUNITIES, INC.
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 a community, before the impact of indirect expenses and Company overhead. The Unleveraged IRR achieved on the communities as cited in this annual report 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.
Stock Performance graph
The stock performance graph provides a comparison, from December 2003 through December 2008, of the cumulative total shareholder return (assuming reinvestment of dividends) among the
Company, the Standard & Poor’s (“S&P”) 500 Index, and a peer group index composed of 15 publicly-traded apartment REITs, including the Company (the “FTSE NAREIT Apartment REIT Index”)
based on an initial purchase price of $100. The FTSE NAREIT Apartment REIT Index includes only REITs that invest directly or indirectly primarily in the equity ownership of multifamily residential
apartment communities. Upon written request to the Company’s Secretary, the Company will provide any stockholder with a list of REITs included in the FTSE NAREIT Apartment REIT Index. The
historical information set forth below is not necessarily indicative of future performance. Data for the FTSE NAREIT Apartment REIT Index and the S&P 500 Index were provided to the Company
by NAREIT.
STOCK PERFORMANCE
$500
$400
$300
$200
$100
$0
2003
2004
2005
2006
2007
2008
AVB FTSE NAREIT Apartment REIT Index S&P 500 Index
Source: NAREIT Benchmarked at 12/03=$100
Dec 2003
Dec 2004
Dec 2005
Dec 2006
Dec 2007
Dec 2008
S&P 500 Index
FTSE NAREIT Apartment REIT Index
AvalonBay
$100
100
100
$111
135
165
$116
154
203
$135
216
303
$142
161
226
$90
121
157
Ten Year FFO Reconciliation
For the Year Ended
(Dollars in thousands)
12-31--08
12-31-07
12-31-06
12-31-05
12-31-04
12-31-03
12-31-02
12-31-01
12-31-00
12-31-99
12-31-98
Net income
$411,487
$358,160
$266,546
$310,468
$207,779
$262,503
$173,125
$248,997
$210,604
$172,276
123,535
Dividends attributable to preferred stock
(10,454)
(8,700)
(8,700)
(8,700)
(8,700)
(10,744)
(17,896)
(40,035)
(39,779)
(39,779)
(28,132)
Depreciation—real estate assets,
including discontinued operations and
joint venture adjustments
Minority interest expense, including
discontinued operations
Cumulative effect of change in accounting principle
203,082
184,731
165,982
163,252
159,221
129,207
143,026
128,086
120,208
108,679
76,339
gain on sale of unconsolidated entities
(3,483)
(59,927)
(6,609)
216
—
280
—
391
—
1,363
—
—
3,048
(4,547)
—
1,263
1,601
1,559
1,759
1,975
1,770
—
—
—
—
—
—
—
—
—
—
—
—
gain on sale of operating communities
(284,901)
(106,487)
(97,411)
(195,287)
(121,287)
(159,756)
(48,893)
(62,852)
(40,779)
(47,093)
(25,270)
Funds from Operations attributable
to common stockholders
Weighted average common shares
outstanding—diluted
$315,947
$368,057
$320,199
$271,096
$235,514
$222,473
$250,963
$275,755
$252,013
$196,058
$148,242
77,578,852 79,856,927 75,586,898
74,759,318 73,354,956 70,203,467 70,674,211
69,781,719
68,140,998
66,110,664 51,771,247
EPS—diluted
$5.17
$4.38
$3.42
$4.05
$2.75
$3.60
$2.22
$3.02
$2.53
$2.03
$1.88
FFO per common share—diluted
$4.07
$4.61
$4.24
$3.63
$3.21
$3.17
$3.55
$3.95
$3.70
$2.97
$2.86
AVALONBAY COMMUNITIES, INC. 15
AVALONBAY CORPORATE INFORMATION
BOARD OF DIRECTORS
Bryce Blair
Chairman and CEO
AvalonBay Communities, Inc.
Bruce A. Choate (2,4,5)
President and CEO
Watson Land Company
A real estate investment trust
John J. healy, Jr. (2,4,5)
Founder and President
hyde Street holdings
A real estate investment firm
gilbert M. Meyer (4)
President and CEO
greenbriar homes Communities, Inc.
A residential developer and builder
Timothy J. Naughton (4)
President
AvalonBay Communities, Inc.
Lance R. Primis (1,3,5)
Managing Partner
Lance R. Primis and Partners, LLC
A management consulting firm
Peter S. Rummell (3,4)
CEO
Nicklaus Companies
An organization of golf-related
businesses
h. Jay Sarles (2,3)
Private Investor
W. Edward Walter (2,4)
President and CEO
host hotels & Resorts, Inc.
A real estate investment trust
1 Lead Independent Director
2 Audit Committee
3 Compensation Committee
4 Investment and Finance Committee
5 Nominating and Corporate gover-
nance Committee
OFFICERS
Bryce Blair
Chairman and CEO
Timothy J. Naughton
President
Thomas J. Sargeant
Chief Financial Officer
Leo S. horey
Executive Vice President
Property Operations
Charlene Rothkopf
Executive Vice President
human Resources
David W. Bellman
Senior Vice President
Construction–East Coast
Sean J. Breslin
Senior Vice President
Redevelopment and Asset
Management
Deborah A. Coombs
Senior Vice President
Property Operations–
Northern CA, Pacific NW
Jonathan B. Cox
Senior Vice President
Development–
Mid-Atlantic, Mid-West
Lili F. Dunn
Senior Vice President
Investments–National
Frederick S. harris
Senior Vice President
Development–NY
Tom A. Javits
Senior Vice President
Development–NY
Joanne M. Lockridge
Senior Vice President
Finance–National
Edward M. Schulman
Senior Vice President
general Counsel and
Secretary–National
Bernard J. Ward
Senior Vice President
Property Operations–
East Coast, Mid-West
Stephen W. Wilson
Senior Vice President
Development–West Coast
Danyell D. Alders
Vice President
Property Operations–Southern CA
Trinity M. Blue
Vice President
Property Operations–Metro NY
Shannon E. Brennan
Vice President
Property Operations–
Mid-Atlantic
Alfred Brockunier III
Vice President
Construction–NY
Duane W. Carlson
Vice President
Construction–Northern CA
Sean M. Clark
Vice President
Development–Southern CA
Scott W. Dale
Vice President
Development–MA
William M. McLaughlin
Senior Vice President
Development–MA, RI, CT, NJ
Tsippora Dingott
Vice President
Information Services–National
J. Richard Morris
Senior Vice President
Construction–National
Kevin P. O’Shea
Senior Vice President
Investment Management
Christopher L. Payne
Senior Vice President
Development–Southern CA
Mark Forlenza
Vice President
Development–CT
Brian E. Fritz
Vice President
Development–Pacific NW
Patrick gniadek
Vice President
Investments–East Coast, Mid-West
Karen A. hollinger
Vice President
Operations–National
Suzanne Jakstavich
Vice President
human Resources–National
Scott R. Kinter
Vice President
Construction–Northeast
Ronald S. Ladell
Vice President
Development–NJ
Lyn C. Lansdale
Vice President
Strategic Business Services–
National
Sarah K. Mathewson
Vice President
Property Operations–MA, RI
Mike F. Nootens
Vice President
Engineering–National
Michael J. Roberts
Vice President
Development–MA
Robert S. Salkovitz
Vice President
Construction–Southern CA
Keri A. Shea
Vice President
Finance and Treasurer–National
Mona R. Stahling
Vice President
Operations–National
B. Kevin Thompson
Vice President
Marketing–National
Matthew B. Whalen
Vice President
Development–Long Island
Philip M. Wharton
Vice President
Development–NY
16 AVALONBAY COMMUNITIES, INC.
FOR M 10-K
A copy of the Company’s annual report
on Form 10-K as filed with the Securities
and Exchange Commission may be obtained
without charge by contacting Investor Rela-
tions.
C EO A ND CF O CE RTIFIC ATION S
In 2008, the Company’s Chief Executive Officer
provided to the New York Stock Exchange
the Annual CEO Certification regarding the
Company’s compliance with the New York
Stock Exchange’s corporate governance
listing standards. In addition, the Company’s
CEO and CFO filed with the Securities and
Exchange Commission the certifications
required by Sections 302 and 404 of the
Sarbanes-Oxley Act of 2002 regarding the
quality of the Company’s public disclosures
in its 2008 annual report on Form 10-K.
STOC K L ISTINgS
NYSE–AVB
FORWA RD -LOOKINg STAT EM ENTS
This Annual Report contains “forward-
looking statements” within the meaning of
the Securities Act of 1933 and the Securities
Exchange Act of 1934. Please see our discus-
sion titled “Forward-Looking Statements”
on page 56 of our Annual Report on Form
10K for a discussion regarding risks associ-
ated with these statements.
AVALONBAY CORPORATE INFORMATION
San Jose, CA
400 Race Street
Suite 200
San Jose, CA 95126
Phone:
Fax:
(408) 983-1500
(408) 287-9167
Seattle, WA
11808 Northup Way
Suite W311
Bellevue, WA 98005
Phone:
Fax:
(425) 576-2100
(425) 576-8447
Virginia Beach, VA
2901 Sabre Street
Suite 100
Virginia Beach, VA 23452
(757) 631-5000
Phone:
(757) 486-1063
Fax:
Woodbridge, NJ
Woodbridge Place
517 Route One South
Suite 5500
Iselin, NJ 08830
Phone:
Fax:
(732) 404-4800
(732) 283-9101
IN VE STOR REL ATIONS
Investor Relations
AvalonBay Communities, Inc.
2900 Eisenhower Avenue
Suite 300
Alexandria, VA 22314
Phone:
ir@avalonbay.com
(703) 329-6300 ext. 4747
WE BSITE
www.avalonbay.com
T RAN SF ER AgENT
BNY Mellon Shareowner Services
P.O. Box 358015
Pittsburgh, PA 15252-8015
(866) 230-0668
Phone:
IN DE P ENDE NT AUD ITOR S
Ernst & Young, LLP
8484 Westpark Drive
McLean, VA 22102
Phone:
(703) 747-1000
hEADQUARTERS
Washington, DC
2900 Eisenhower Avenue
Suite 300
Alexandria, VA 22314
Phone:
Fax:
(703) 329-6300
(703) 329-1459
REgIONAL OFF ICE S
Boston, MA
51 Sleeper Street
Suite 750
Boston, MA 02210
Phone:
Fax:
(617) 654-9500
(617) 426-1610
Chicago, IL
180 North Arlington heights Road
Arlington heights, IL 60004
Phone:
Fax:
(847) 342-0065
(847) 342-0075
Shelton, CT
1000 Bridgeport Avenue
Suite 258
Shelton, CT 06484
Phone:
Fax:
(203) 926-2300
(203) 926-9744
Long Island, NY
135 Pinelawn Road
Suite 130 South
Melville, NY 11747
Phone:
Fax:
(631) 843-0736
(631) 843-0737
Los Angeles, CA
16255 Ventura Boulevard
Suite 950
Encino, CA 91436
Phone:
Fax:
(818) 784-2800
(818) 784-2810
Newport Beach, CA
4440 Von Karman Avenue
Suite 300
Newport Beach, CA 92660
(949) 955-6200
Phone:
(949) 724-9208
Fax:
New York, NY
275 Seventh Avenue
25th Floor
New York, NY 10001
Phone:
Fax:
(212) 370-9269
(212) 370-1415
San Francisco, CA
185 Berry Street
Suite 3500
San Francisco, CA 94107
(415) 284-9080
Phone:
(415) 546-4138
Fax:
O
C
S
I
C
N
A
R
F
N
A
S
,
.
C
N
I
,
I
g
A
R
C
&
Y
E
N
I
E
h
:
I
N
g
S
E
D
STRATEgY
PRODUCTS
ORgANIZATION
FINANCIALS
BuIlt to
EnduRE
2900 Eisenhower Avenue
Suite 300 • Alexandria • VA • 22314
www.avalonbay.com