AvalonBay Communities
Annual Report 2009

Plain-text annual report

Where You Want to Be 2009 ANNUAL REPORT 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. At year-end 2009, our total market capitalization was $10.7 billion. Over the last ten years, the compound annual growth rate of our total shareholder return was 14.4% and the compound annual growth rate of our dividend was 5.7% during the same time period. Our strategy is to be leaders in customer insight, market research and capital allocation, delivering a range of multifamily offerings tailored to serve the needs of the most attractive customer segments in the best-performing US submarkets. 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. 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 TOTAL SHA REHO L DER RE TURN (1) NAV PER SHARE GROWTH (2) FFO PER SHARE GROWTH ( 3) % 8 . 3 4 % 9 . 8 2 50% 40% 30% 20% 10% 0% 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 . 2 % 9 . 5 % 4 . 4 1 % 0 . 0 1 % 4 . 0 % 8 . 4 % 0 . 2 % 8 . 2 - 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% -10% -20% -30% % 6 . 7 1 - % 9 . 0 2 - % 9 . 3 % 0 . 2 - % 7 . 2 % 4 . 1 - e t a R h t w o r G l a u n n A d n u o p m o C 5% 0% -5% -10% -15% % 4 . 4 - % 6 . 3 1 - 1 year 5 year 10 year 1 year 5 year 10 year 1 year 5 year 10 year AVB Multifamily Sector Avg. AVB Multifamily Sector Avg. Source: SNL Financial AVB Multifamily Sector Avg. Source: SNL Financial, Green Street Advisors COVER ANd OPPOSITE: VIEwS Of NEw YORk CITY fROM AVALON fORT GREENE. LOCATEd IN dOwNTOwN BROOkLYN, ThIS 42-STORY dEVELOPMENT BEGAN LEASING IN fOURTh QUARTER 2009 ANd CONTAINS 631 APARTMENT hOMES. Where You Want to Be F o r ou r c u s t o m e r s , a s s o c i a t e s & ou r sHa r eHo l d e r s AVALONBAY COMMUNITIES, INC. 1 A v Al o n b u r bAn k , cA 2 AVALONBAY COMMUNITIES, INC. T O O U R ShA R EhO LdE R S W e began 2009 immersed in one of the most years, and ended the year with a sense that the worst had passed. Indeed, markets recovered robustly challenging economic environments in 75 from troughs reached during early 2009, as the S&P 500 Index was up 26% for the year and the Morgan Stanley REIT Index rose 29%. for AvalonBay, Total Shareholder Return was 44% in 2009. despite these improved returns, the economic and op- erating environment we faced in 2009 left little room for error. Our response to the challenges presented by last year’s turmoil was supported by a strong balance sheet, a proven long-term business strategy and more than 20 years of cycle-tested management experience. we ex- pected apartment fundamentals to deteriorate through- out the year at an accelerating pace and they did. As the capital markets began to heal, we enhanced our fi- nancial flexibility by improving liquidity, extending debt maturities and adding equity to our capital structure. At the same time, we kept our eye on the future and the im- proving long-term fundamentals we expect will emerge. By year-end, we had increased investment activity – both development and acquisitions – to levels appropriate for an emerging economic recovery. Last year’s report, titled Built to Endure, described an or- ganization with the experience and resources to preserve value during periods of economic stress and to pursue opportunities out of reach for others. This year, whether you are an investor, an associate within our company, or a resident in one of our communities, we believe Avalon- Bay is Where You Want To Be: an organization alert and responsive to challenging market conditions while being prepared for the next phase of growth and opportunities. In this letter, we’ll review results and how actions we took last year position us for continued success. we will then look at the demand/supply fundamentals influencing both our business and our industry now and going forward. This context will provide the backdrop for a discussion of trends we see emerging with the new decade ahead that will affect both our industry and our business. Looking Back: 2009 In Review Our early outlook anticipated a difficult operating envi- ronment with revenue declining at an accelerating pace for much of the year. while that early directional read on operating trends was accurate, job losses exceeded expectations and Net Operating Income (NOI) from our Same Store portfolio decreased 7% for the year, slightly more than our original outlook of 5%. Earnings per Share (EPS) declined 63% to $1.93 from lower NOI, reduced gains on asset sales and impairment losses recognized as we re-scaled the business. funds from Operations (ffO) decreased 4% to $3.89. Adjusting for non-routine charges, operating ffO decreased 11%. Unprecedented economic uncertainty called for caution, and we responded in a number of ways: • Anticipating weak operating fundamentals in 2009 and into 2010, we reduced investment activity and development risk during 2009 by deferring new devel- opment starts until the fourth quarter. By then, greater visibility on the economy, the capital markets and the prospect of improving fundamentals supported a measured level of new development. Accordingly, we broke ground on two communities in late 2009 at a total cost of $65 million. • we completed and delivered nine new communities, totaling over 2,500 apartment homes for a Total Capi- tal Cost of $800 million. At year-end 2009, we had seven developments under construction – half the volume underway at the prior year-end. • we sold five assets, compared to 11 sold in the prior year, for an aggregate price of $180 million. These sales provided a total Economic Gain of $44 AVALONBAY COMMUNITIES, INC. 3 A v Al o n Mo r nInG S I D E P Ar k, nY W He r e Yo u W a n t t o Be We have a diverse, high-quality portfolio of apartment homes in the nation’s premier, supply- constrained coastal markets. To visit all our communities, go to www.avaloncommunities.com. 4 AVALONBAY COMMUNITIES, INC.  million, a 13% Unleveraged IRR on our investment more than three years, allowing us to avoid additional se- at a weighted average Initial Year Market Cap Rate of cured debt and preserve access to the unsecured markets. 6.5% - evidence of long-term value creation. • Redevelopment activity resulted in four completions during the year for a Total Capital Cost of approxi- mately $30 million (excluding costs incurred prior to redevelopment). we started four redevelopments with incremental estimated Total Capital Costs of $50 million. This investment activity was supported by significant fi- nancing activity. we sourced over $1.7 billion of new capi- tal in 2009, boosting liquidity, lowering interest rates and FINANCIAL FLEXIBILITY Fund II Equity Commitments $92 Million Continuous Equity Program $103 Million Unsecured Debt $500 Million Dispositions $193 Million Secured Debt $834 Million reducing refinancing risk by extending durations. we is- Source: Company Reports sued unsecured debt, tendered for and redeemed unse- cured notes, and launched a Continuous Equity Program (CEP). These efforts left us with cash on hand and modest during 2009 we issued $103 million of common stock capital needs heading into 2010. under the CEP. This program is an efficient and cost effective source of equity capital and financial flexibility, while refinancing activity for the year mitigated finan- allowing us to better match investment with financing cial and maturity risk, it also provided substantial cost activity while mitigating pricing risk. savings. The weighted average interest rate on all our debt at the beginning of 2009 was 5.3%. By year-end, Last year’s capital markets activity was extraordinary and that same measure had dropped to 5.1% on $4 billion of underscores not only the substantial improvement in debt, representing an annual savings of $8 million per the capital markets during the year but also the financial year. floating rate debt declined to just 9% of our Total strength and flexibility we enjoy with one of the stron- Market Capitalization. gest balance sheets in the REIT industry. with these savings comes enhanced financial flexibility. The issuance of unsecured debt in 2009 was our first in The National Economy and Apartment Fundamentals M ODEST NE AR-TE RM MAT URIT IES year’s job losses, which were unusual in scale and breadth Our operating results in 2009 reflect the severity of last ) s n o i l l i m n i $ ( t b e D l a t o T $500 $400 $300 $200 $100 $0 9 3 2 $ 5 2 1 $ 3 2 4 $ 0 8 3 $ 0 8 3 $ 6 8 2 $ 6 6 2 $ 9 9 1 $ with no major metro area spared. during the first half of 2009, an average of 500,000 jobs were lost each month. Losses continued into the second half of 2009 at a lesser pace, with monthly job losses averaging 250,000. But the damage was already done and, by year-end, unemploy- ment reached 10%, further weakening renter demand. while job losses continue, emerging GdP growth, healing 8 1 $ credit markets and rising consumer confidence suggest 2010 2011 2012 2013 2014 2015 2016 2017 2018 2010 will be a transition year. Experience teaches us that Source: Company Reports job growth lags GdP growth by three or four quarters. So for 2010, we expect job losses early in the year will turn AVALONBAY COMMUNITIES, INC. 5 W He r e Yo u W a n t t o Be From product design to the level of service in our communities, we focus relentlessly on meeting the needs of our customers—to make their AvalonBay experience Time Well Spent. 6 AVALONBAY COMMUNITIES, INC. to job gains and apartment fundamentals will transition a struggling economy slows household formation, it also from weak to modestly positive during the year. Changes creates pent-up demand for apartments that will be re- in rental revenue historically lag employment changes by leased once job growth resumes. one to two quarters, suggesting a sustained positive im- pact on rental revenue is unlikely until 2011. The longer-term outlook supports our expectations for a positive and compelling story, driven by historically low levels of new construction and anticipated demand from both economic recovery and demographic trends. Between 2004 and 2007, construction starts for new mul- tifamily rental product averaged 210,000 units per year. By 2009, that number had fallen to 83,000 units and for 2010 we expect only 58,000 starts – a 70% decline from 2004-2007 levels. s t r a t S n o i t c u r t s n o C l a t n e R y l i m a f i t l u M S U 250,000 200,000 150,000 100,000 50,000 0 CONSTRAINE D SUPPLY (4) 0 0 0 , 0 1 2 0 0 0 , 3 8 0 0 0 , 8 5 2004-07 Avg. 2009 2010 Source: Witten Advisors 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 STRONG DEMAND FROM FAVORABLE DEMOGRAPHICS 2.5 1.6 ) s n o i l l i M n i ( t n e m g e S e g A 4.0 3.0 2.0 1.0 0 2004-2009 2010-2015 Source: Census Bureau, National Multi-Housing Council Looking Ahead: The New Decade Over the last two decades, we’ve successfully steered the company through several business cycles. while apartment fundamentals will continue to operate within cyclical ebbs and flows, the economic times we’re facing are extraordinary and appear to be producing important shifts impacting our industry: • Shifts in Capital Formation. It will likely be harder to raise capital and those companies with balance sheet strength will disproportionately benefit. Going for- Over the last four years, AvalonBay’s markets were less ward, access to the public capital markets will be a sig- impacted by the housing oversupply that crippled some nificant competitive advantage, as increased regula- other markets. Measured as a percentage of total housing tion of the financial services industry may further supply, new housing increased by 3.7% in our markets constrain capital formation for private real estate from 2005 through 2009 compared to 6.6% nationally. owners. Most “merchant build” business models are simply not viable in today’s environment, strengthen- while these numbers suggest constrained supply, par- ing the competitive environment for well-capitalized ticularly for our high barrier coastal markets, it’s only part public companies such as AvalonBay. of the story. demographic trends suggest strong renter demand is on the horizon. The population of young adults • Shifts in Demand/Supply. for demand, we noted the age 25 to 34 is expected to increase by 2.5 million over demographic shift towards growth in younger age co- the next five years, compared to1.6 million over the past horts with higher propensities to rent. for supply, a five years, a 60% increase. Individuals under 35 years tougher credit environment will put further constraints of age have the highest propensity to rent of any age on new development for many of our competitors. group, which bodes well for apartment demand. while AVALONBAY COMMUNITIES, INC. 7 A v Al o n tIn t o n f Al lS, nJ W He r e Yo u W a n t t o Be With one of the strongest balance sheets in the industry and a proven, time-tested strategy, we are well positioned for continued long- term growth. 8 AVALONBAY COMMUNITIES, INC. COM PE LL ING F UNDA MENTA L S IN F U TU RE YEARS (5) 400,000 300,000 200,000 100,000 0 -100,000 -200,000 2008 2009 2010 2011 2012 New Renter Demand New Apartment Supply caution, we believe we are where we want to be to pursue emerging opportunities: • Liquidity. Our liquidity position is strong, leverage re- mains modest by industry standards, and our commu- nities remain largely unencumbered, preserving access to the unsecured debt markets. Based on development and redevelopment activity currently underway, we can meet all of our investment and financing commitments well into 2012. • Dividend. Our goal is to retain as much capital as pos- sible while ensuring we cover the dividend from recur- ring cash flow through all phases of the real estate cycle. Over the past ten years, our regular quarterly Source: Witten Advisors dividend has increased 70% compared to a decline of 7% for the Multifamily Sector Average. • Shift Toward Deleveraging. Increased stock price vola- tility for REITs is in part related to leverage levels. while OUTSIZED DIVIDEND GROWTH (6) deleveraging has been and will continue to be painful for some, well-capitalized public REITs are better-positioned to reap the benefits of a simple, more equity-oriented capital structure. • Shifts in Government Policies. More government regulation of energy use along with a greater focus on environmental protection will likely have a signifi- cant impact on urban growth patterns. Changes in zoning to encourage greater density and proximity to mass transit will benefit multifamily housing – particu- larly those companies with a core competency in high- density development like AvalonBay. • Shifts in Rent vs. Buy Patterns. The housing correction proved that the rise in U.S. homeownership was un- sustainable. Since 2006, the U.S. homeownership rate has dropped from its peak of approximately 69% to about 67%, a gain of over 1.5 million potential renter households. Indeed, historic government support for homeownership could wane as policymakers conclude that the nation is better served by a more balanced housing policy. Given these likely future trends, it’s fair to ask: how well is AvalonBay positioned for the next decade? After a year of h t w o r G 9 0 0 2 - 9 9 9 1 80% 60% 40% 20% 0% -20% 73% -7% AVB Multifamily Sector Avg. Source: Company Reports, SNL Financial • Value Creation. A recovering economy, reduced con- struction costs, expectations for a shortage of new apartments and improving capital markets now sup- port a modest level of new starts. At higher initial yields, delivering new apartment homes into what we expect will be a period of improving fundamentals should provide outsized risk adjusted returns. • Multiple Growth Platforms. In markets where develop- ment is less attractive, we will allocate capital to re- develop assets to enhance returns. In addition, we have over $1 billion of capacity to pursue acquisitions of existing assets in our markets through our invest- ment management platform. AVALONBAY COMMUNITIES, INC. 9 A v Al o n Ir vInE, cA 10 AVALONBAY COMMUNITIES, INC. Conclusion we entered the downturn in a strong position, with a proven business strategy and sound financial foundation. Today, the private “merchant build” model is under stress and may not survive a new era of constrained capital for- mation. But while the competitive landscape has changed, new competitors will emerge. As the economic recovery unfolds, the decisions we made last year position us well to continue our long track record of outperformance. we believe one of the most important aspects of our mis- sion is to be a leader in capital allocation. Our strategy of allocating capital to deliver a range of multifamily of- ferings tailored to serve the needs of the most attractive customer segments in the best performing US submar- kets will serve our investors well. Going forward, as our supply-constrained markets experience improving renter demand as we expect, we would ask: where do you want to be? whether through building, operating, upgrading or acquiring high quality product in a risk-measured way, or from thoughtful management of a strong balance sheet, we believe we are on track to continue providing total shareholder return and NAV growth near the top of the 15% 10% 5% 0% -5% 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 LONG-TERM OUTPERFORMANCE (1,2,3) % 0 . 0 1 % 4 . 4 1 % 7 . 2 % 4 . 1 - FFO % 8 . 4 % 4 . 0 NAV TSR AVB Multifamily Sector Avg. Source: Green Street Advisors, SNL Financial And as always, thank you to our shareholders for their continued support, to our associates for their extraordi- nary efforts, and to our residents who have chosen to make an AvalonBay community their home. sector as we have done over the last decade. BRYCE BLAIR, ChAIRMAN & CEO In closing, we want to recognize Mike Meyer, who will be retiring from our Board of directors this year. One of the founders of AvalonBay Communities, Mike is a rec- ognized leader in the real estate industry and has con- tributed greatly to AvalonBay’s success through his prior role as AvalonBay’s Executive Chairman and his long- term service on our Board. we are grateful for his past contributions and wish him the best. AVALONBAY COMMUNITIES, INC. 11 A v Al o n AnAhE I M St A D IuM, cA 12 AVALONBAY COMMUNITIES, INC. 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. 4. US Multifamily Rental Construction Starts defined as construction starts per US Census Bureau data (historic data through 2009) and forecasts from witten Advisors (2010 forecast as of 4Q 2009). 5. New Renter demand defined as net apartment absorption (US) based on the year/year change in occupancy (US). New Apartment Supply defined as total US rental apartment home completions. data and forecast from witten Advisors as of 4Q 2009. 6. Includes regular dividends declared for each quarter of the ten years presented. TABLE Of CONTENTS Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 33 Selected financial data Management’s discussion and Analysis of financial Condition and Results of Operations Quantitative and Qualitative disclosures About Market Risk Changes in and disagreements with Accountants on Accounting and financial disclosure Consolidated financial Statements 35 38 58 60 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 $26,972,000 of costs associated with the tender offer completed in October 2009. A reconciliation of EBITdA and a calculation of Interest Coverage for the fourth quarter of 2009 are as follows (dollars in thousands): Net income attributable to the Company Interest expense, net depreciation expense depreciation expense (discontinued operations) Tender offer costs EBITdA (adj. for Tender offer costs) EBITdA from continuing operations (adj. for Tender offer costs) EBITdA from discontinued operations EBITdA EBITdA from continuing operations Land gains EBITdA from continuing operations (adj. for Tender offer costs), excluding land gains Interest charges Interest coverage $32,394 42,107 55,392 1,200 26,972 $158,065 $117,078 40,987 $158,065 $117,078 (4,589) $112,489 $42,107 2.7 AVALONBAY COMMUNITIES, INC. 13 Initial Year Market Capitalization Rate (Cap Rate) Projected NOI of a single community for the first (or next succeeding) 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), 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, 2009 is as follows (dollars in thousands): Total debt Common stock Operating partnership units Total debt Total Market Capitalization $3,977,092 $6,694,343 1,260 3,977,092 $10,672,696 debt as % of capitalization 37.3% 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” and “Outsized dividend Growth” consists of AEC, AIV, BRE, CPT, EQR, ESS, hME, MAA, PPS and UdR. The weighted average for “ffO per Share Growth”consists of AEC, AIV, BRE, CPT, EQR, ESS, hME, MAA and UdR. The weighted average for “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 consists of 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 2009 is presented below (dollars in thousands): Number of Communities Sold 5 Communities Gross Sales Price $179,675 GAAP Gain $61,116 Accumulated depreciation and Other $16,626 Economic Gain $44,490 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. 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. 14 AVALONBAY COMMUNITIES, INC. Stock Performance Graph The stock performance graph provides a comparison, from december 2004 through december 2009, 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 $200 $150 $100 $50 $0 2004 2005 2006 2007 2008 2009 AVB FTSE NAREIT Apartment REIT Index S&P 500 Index Source: NAREIT Benchmarked at 12/04=$100 dec 2004 dec 2005 dec 2006 dec 2007 dec 2008 dec 2009 S&P 500 Index fTSE NAREIT Apartment REIT Index AvalonBay $100 100 100 $105 115 123 $121 160 184 $128 120 137 $81 90 95 $102 117 137 Ten Year ffO Reconciliation for the Year Ended (dollars in thousands) 12-31--09 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 Net income $155,647 $411,487 $358,160 $266,546 $310,468 $207,779 $262,503 $173,125 $248,997 $210,604 $172,276 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) depreciation—real estate assets, including discontinued operations and joint venture adjustments distributions to noncontrolling interests including discontinued operations Cumulative effect of change in accounting principle Gain on sale of unconsolidated entities Gain on sale of operating communities funds from Operations attributable to common stockholders weighted average common shares outstanding—diluted 221,415 203,082 184,731 165,982 163,252 159,221 129,207 143,026 128,086 120,208 108,679 66 — — 216 — 280 — 391 — (3,483) (59,927) (6,609) 1,363 — — 3,048 (4,547) — 1,263 1,601 1,559 1,759 1,975 — — — — — — — — — — (63,887) (284,901) (106,487) (97,411) (195,287) (121,287) (159,756) (48,893) (62,852) (40,779) (47,093) $313,241 $315,947 $368,057 $320,199 $271,096 $235,514 $222,473 $250,963 $275,755 $252,013 $196,058 80,599,657 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 EPS—diluted $1.93 $5.17 $4.38 $3.42 $4.05 $2.75 $3.60 $2.22 $3.02 $2.53 $2.03 ffO per common share—diluted $3.89 $4.07 $4.61 $4.24 $3.63 $3.21 $3.17 $3.55 $3.95 $3.70 $2.97 AVALONBAY COMMUNITIES, INC. 15 AVALONBAY CORPORATE INfORMATION BOARd Of dIRECTO RS 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 trust 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. Rummel (3,4) Private Investor 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 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 Sean J. Breslin Executive Vice President Redevelopment and Asset Management Bill McLaughlin Executive Vice President development & Construction– Northeast Steve wilson Executive Vice President development & Construction– west Coast and Mid-Atlantic david w. Bellman Senior Vice President Construction–East Coast 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 Joanne M. Lockridge Senior Vice President finance, Assistant Treasurer and Assistant Secretary–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 Edward M. Schulman Senior Vice President General Counsel and Secretary–National Bernard J. ward Senior Vice President Property Operations– East Coast, Mid-west 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 Redevelopment and Asset Management Scott w. dale Vice President development–MA Tsippora dingott Vice President Information Services–National Mark forlenza Vice President development–CT Brian E. fritz Vice President development–Pacific Nw Patrick Gniadek Vice President Investments 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. fORM 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. S TOCk LIST INGS NYSE–AVB fOR wA Rd-L OOkING STATEM 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 55 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 S TOR R ELAT IONS Investor Relations AvalonBay Communities, Inc. Ballston Tower 671 N. Glebe Road Suite 800 Arlington, VA 22203 Phone: ir@avalonbay.com (703) 329-6300 ext. 4747 wE BSITE www.avalonbay.com T RAN SfE R A GENT BNY Mellon Shareowner Services P.O. Box 358015 Pittsburgh, PA 15252-8015 (866) 230-0668 Phone: INdE P E NdE NT A UdIT ORS Ernst & Young, LLP 8484 westpark drive McLean, VA 22102 Phone: (703) 747-1000 hEAdQUARTERS washington, dC Ballston Tower 671 N. Glebe Road Suite 800 Arlington, VA 22203 Phone: fax: (703) 329-6300 (703) 329-1459 REGIONAL Of fI CE 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 , G I A R C & Y E N I E h : N G I S E d Ballston Tower 671 N. Glebe Road Suite 800 • Arlington • VA • 22203 www.avalonbay.com 

Continue reading text version or see original annual report in PDF format above