2015 ANNUAL REPORT
1
AVALONBAY COMMUNITIES, INC.
is an equity REIT in the business of developing, redeveloping,
acquiring and managing multifamily communities primarily
in New England, the New York/New Jersey metro area, the
Mid-Atlantic, the Pacific Northwest, and Northern and
Southern California. We focus on leading metropolitan areas
in these regions that we believe are characterized by growing
employment in high wage sectors of the economy, lower
housing affordability and a diverse and vibrant quality of life.
We believe these market characteristics offer the opportunity
for superior risk-adjusted returns on apartment community
investment relative to other markets.
FINANCIAL HIGHLIGHTS
TOTAL SHAREHOLDER RETURN(1)
Source: SNL Financial
17.4 %
16.0%
2.5%
1.4 %
13.7% 14.0%
11.9% 12.6%
11.7% 11.3%
7.3% 7.3%
1 YEAR
5 YEAR
10 YEAR
• AvalonBay • Multifamily Sector Weighted Average
• MSCI US REIT INDEX (“RMZ”) • S&P 500
CORE FFO PER SHARE GROWTH(2)
Source: SNL Financial
13.7%
10.2%
7.5%
3.8%
5 YEAR
10 YEAR
• AvalonBay • Multifamily Sector Weighted Average
NAV PER SHARE GROWTH(3)
Source: SNL Financial
13.6%
13.3%
8.5%
6.8%
5 YEAR
10 YEAR
• AvalonBay • Multifamily Sector Weighted Average
2
A COMPANY RECORD!
2015 AT A GLANCE:
CORE FFO PER SHARE GROWTH
IN DEVELOPMENT COMPLETIONS
11.4%
$1.3 BILLION
16.0%
NO.1ONLINE REPUTATION
TOP10%
TOTAL SHAREHOLDER RETURN
ASSOCIATE ENGAGEMENT
Source: IBM Kenexa Survey
Source: ORA Multifamily Power Rankings powered by J Turner Research
WINNER!
LEADER IN THE LIGHT AWARD
Source: NAREIT Leader In The Light – Sustainable Real Estate Practices
AVA High Line, New York, NY
AVALON BAY | 2015 Annual Report
3
3
AVALONBAY | 2015 Annual Report
Avalon Roseland
Roseland, NJ
Avalon Wharton
Wharton, NJ
Avalon Hayes Valley
San Francisco, CA
Avalon West Chelsea
New York, NY
AVA Little Tokyo
Los Angeles, CA
Avalon Baker Ranch
Lake Forest, CA
4
Avalon Marlborough
Marlborough, MA
Avalon Framingham
Framingham, MA
Dear Fellow Shareholders,
THE YEAR IN REVIEW
2015 was another outstanding year for AvalonBay. We delivered
same-store Net Operating Income (“NOI”) growth of 5.8% and Core
FFO per share growth of 11.4%, which helped drive total shareholder
return of 16% in 2015. We also completed a Company record $1.3
billion of new development at a weighted average initial projected
stabilized yield of 6.7%, and we commenced construction on 13 new
development communities that, if developed as expected, will contain
nearly 3,800 apartment homes and represent $1.2 billion in projected
total capital costs.
Our associates delivered another year of exceptional customer service
in 2015, as evidenced by a resident satisfaction score that was 700
basis-points above the Kingsley Multifamily Resident Satisfaction
Index. We continue to lead the multifamily sector in sustainability,
receiving the National Association of Real Estate Investment Trusts’
2015 Residential Leader in the Light award, and were identified as
a sector leader by the Global Real Estate Sustainability Benchmark
(GRESB). Both of these organizations recognize industry leaders
that demonstrate a long-term commitment to environmental and
social responsibility. In addition, in January of 2016, we announced
a new Building Certified policy that requires all new mid-rise and
high-rise construction projects to achieve third-party certification of
environmental and energy efficiency from external rating programs,
such as LEED or Energy Star.
Over the course of 2015, we also improved our balance sheet and
financial flexibility. Debt-to-Total Market Capitalization declined
to 20.4% at year-end 2015, 260 basis-points below our year-end 2014
level. Net debt-to-Core EBITDA at year-end 2015 was 4.8 times,
down from 5.2 times a year earlier. Finally, Unencumbered NOI
improved 900 basis-points to 78% over the same period.
As a result of these accomplishments and our expectations for the
year ahead, we announced an increase in our quarterly dividend
in January 2016 to $1.35 per share, an 8% increase over our 2015
quarterly dividend.
Our 2015 results continue a track record of superior performance.
Dating back to our initial public offering in 1994, Core FFO per share
and our dividend have increased approximately 7% and 5-1/2%,
respectively, on an annual compounded basis. Over the same time
period we generated annual total shareholder return of 14.6%,
reflecting the successful execution of a durable and proven strategy.
A LOOK AHEAD
Looking ahead to 2016, we expect the U.S. economy to continue to
expand at a moderate pace and support healthy apartment market
fundamentals. In our markets, we expect job growth of 2.2% (in-line
with last year’s pace) and personal income growth of 6.6% (ahead of last
year’s growth of 4.9%).
We believe U.S. demographic trends will provide additional support to
apartment demand. The prime rental cohort, those between the ages
of 25 and 34, is expected to grow by over two million individuals by the
end of the decade. Further, over the same period there are expected
to be over one million more individuals between the ages of 35 and
44. This segment of the population has been an increasingly important
source of apartment demand and is responsible for much of the growth
in the renter population over the last decade, largely due to a significant
decline in this cohort’s homeownership rate (from 70% in 2005 to 58%
in 2015).
We expect that lifestyle trends and financial constraints on young
renters will extend rental tenures over the next several years. The
average age at first marriage and a mother’s age at first birth have both
increased by at least a year in the last decade. Additionally, we believe
that student debt burdens and limited mortgage availability will likely
continue to dampen home purchases.
In response to strong demand, we are seeing an increase in new
apartment supply. However, across our portfolio in 2016, we believe
apartment demand will be sufficient to absorb the new apartment
supply, and we expect our same-store portfolio to produce another year
of healthy growth.
We believe NOI contributions from new investment activity will
continue to differentiate our growth in the years ahead. In 2016,
we anticipate completing nine new development communities at
initial stabilized yields well in excess of our cost of capital. These
communities are expected to contain over 2,500 apartment homes and
represent nearly $1 billion in projected total capital costs. We also plan
to commence construction on nine new communities that are expected
to contain approximately 2,800 apartment homes and represent $1.2
billion in projected total capital costs.
Finally, we intend to continue our practice of substantially match-
funding new investment commitments with long-term capital in order
to lock in attractive investment margins. We enter 2016 with a strong
and flexible balance sheet, and we are approximately 85% match-
funded against existing development commitments. We maintain
excellent access to liquidity, including $400 million of cash and cash
equivalents on the balance sheet and no amounts outstanding under
our $1.5 billion credit facility at year-end 2015. We believe we are well
positioned to pursue future investment opportunities.
CONCLUSION
In summary, we expect 2016 to be another strong year for AvalonBay.
We believe favorable apartment fundamentals, a portfolio of assets
located in the most desirable U.S. markets, an unmatched development
capability, and a balance sheet built to endure will continue to
differentiate our growth from our peers.
Thank you for your continued investment in AvalonBay.
TIMOTHY J. NAUGHTON
Chairman and CEO
5
AVALONBAY | 2015 Annual Report AVA Theater District, Boston, MA
TABLE OF CONTENTS
Form 10-K Page
CORE EBITDA (Dollars in thousands)
38
For the quarter ending:
12/31/2015
12/31/2014
FINANCIALS
6
6
AVALON BAY | 2015 Annual Report
Market for Registrant’s Common Equity,
Related Stockholder Matters and
Issuer Purchases of Equity Securities
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
39
43
65
65
Consolidated Financial Statements
F-3
DEFINITIONS AND RECONCILIATIONS
Of Non-GAAP Financial Measures and Other Terms
This Annual Report contains certain non-GAAP financial
measures and other terms. The definitions and calculations 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 or FFO, Net Operating
Income or NOI, Established/Same-Store Communities) are
contained in our annual report on Form 10-K, which is distributed
with and a part of this Annual Report.
The Multifamily Sector Weighted Average is a weighted average
based on Total Market Capitalization per SNL Financial as of
December 31, 2015. The weighted average for Total Shareholder
Return, Core FFO and NAV per share growth consists of AIV, CPT,
EQR, ESS, MAA, PPS and UDR.
Net Debt-to-Core EBITDA is calculated by the Company as total
debt that is consolidated for financial reporting purposes, less
consolidated cash and cash in escrow, divided by annualized fourth
quarter Core EBITDA, as adjusted. A calculation of Core EBITDA
and Net Debt-to-Core EBITDA as of December 31, 2015 and
December 31, 2014 is as follows (dollars in thousands):
Net income attributable to common
stockholders
Interest expense, net
Income tax expense
$155,428
$142,642
42,217
47,987
215
9,332
Depreciation expense
122,259
114,084
EBITDA
$320,119
$314,045
NOI from discontinued operations and
real estate assets sold or held for sale,
not classified as discontinued operations
$(1,896)
$(2,257)
Gain on sale of communities
(9,474)
(23,980)
EBITDA after disposition activity
$308,749
$287,808
Joint venture income
$(1,093)
$(5,241)
Casualty and impairment loss (gain), net
Lost NOI from Edgewater fire
Other non-core adjustments(1)
125
2,790
335
-
-
-
Core EBITDA
$310,906
$282,567
(1) Refer to the Core FFO definition included in the accompanying Form 10-K.
NET DEBT-TO-CORE EBITDA (Dollars in thousands)
2015
2014
Total debt principal(1)
$6,481,291
$6,448,138
Cash and cash in escrow
(505,328)
(605,085)
Net debt
Core EBITDA
5,975,963
5,843,053
$310,906
$282,567
Core EBITDA, annualized
$1,243,624
$1,130,268
Net Debt-to-Core EBITDA
4.8 times
5.2 times
(1) Balance at December 31, 2015 excludes $7,601 of debt discount and $21,725 of deferred financing
costs as reflected in unsecured notes, net, and $19,686 of debt premium and $14,703 of deferred
financing costs as reflected in notes payable, on the Condensed Consolidated Balance Sheets. Balance at
December 31, 2014 excludes $6,735 of debt discount as reflected in unsecured notes, net, and $84,449 of
debt premium as reflected in notes payable, on the Condensed Consolidated Balance Sheets. The debt
premiums are primarily related to above market interest rates on debt assumed in connection with the
Archstone acquisition.
Debt-to-Total Market Capitalization is a measure of leverage
that is calculated by expressing, as a percentage, debt divided by
Total Market Capitalization, which is defined as 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 debt. Management believes
that this measure of 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. Because this measure of leverage changes with fluctuations
7
AVALONBAY | 2015 Annual Report in the Company’s stock price, which occur regularly, this measure
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. A calculation of Debt-to-Total Market
Capitalization as of December 31, 2015 and December 31, 2014 is as
follows (dollars in thousands):
UNENCUMBERED NOI
(Dollars in thousands)
Net income
Indirect operating expenses, net
of corporate income
Investments and investment
management expense
2015
2014 (1)
$741,733
$697,327
56,973
49,055
4,370
4,485
DEBT-TO-TOTAL MARKET CAPITALIZATION
(Dollars in thousands)
Expensed acquisition, development and
other pursuit costs, net of recoveries
6,822
(3,717)
2015
2014
Interest expense, net (1)
175,615
180,618
Common stock
$25,226,184
$21,575,712
Operating partnership units
1,381
1,225
Total debt
6,481,291
6,448,139
Total Market Capitalization
$31,708,856 $28,025,076
(Gain) loss on extinguishment of debt, net
(26,736)
412
General and administrative expense
42,396
41,425
Equity in (income) loss of unconsolidated
real estate entities
(70,018)
(148,766)
Debt as a % of Capitalization
20.4%
23.0%
Depreciation expense (1)
477,923
442,682
Unencumbered NOI as calculated by the Company represents NOI
generated by real estate assets unencumbered by either outstanding
secured debt or land leases (excluding land leases with purchase
options that were put in place for governmental incentives or
tax abatements) as a percentage of total NOI generated by real
estate assets. The Company believes that current and prospective
unsecured creditors of the Company view Unencumbered NOI
as one indication of the borrowing capacity of the Company.
Therefore, when reviewed together with the Company’s Interest
Coverage, EBITDA and cash flow from operations, the Company
believes that investors and creditors view Unencumbered NOI
as a useful supplemental measure for determining the financial
flexibility of an entity. A calculation of Unencumbered NOI for
the years ended December 31, 2015 and December 31, 2014 is as
follows (dollars in thousands):
View from AVA Theater District
Boston, MA
Income tax expense
1,861
9,368
Casualty (gain) loss and
impairment loss, net
(10,542)
-
Gain on sale of real estate assets
(125,272)
(85,415)
Gain on sale of discontinued operations
Income from discontinued operations
-
-
(37,869)
(310)
Net operating income from real estate
assets sold or held for sale, not classified
as discontinued operations
(10,920)
(15,199)
Net operating income
$1,264,205
$1,134,096
Income from discontinued operations
-
310
Net operating income from real estate
assets sold or held for sale, not classified
as discontinued operations
10,920
15,199
Total NOI generated
by real estate assets
$1,275,125
$1,149,605
NOI on encumbered assets
(279,508)
(352,021)
NOI on unencumbered assets
$995,617
$797,584
Unencumbered NOI
78%
69%
(1) Includes amounts associated with assets sold or held for sale, not classified as discontinued operations.
S
E
T
O
N
1. TOTAL SHAREHOLDER RETURN:
The change in the value over the period
stated with all dividends reinvested. Total
Shareholder Return is presented as the
compound annual growth rate. Total
Shareholder Return for each year within the
timeframe presented may vary.
2. CORE FFO PER SHARE GROWTH:
The compound annual growth rate of
Operating FFO per Share, as Reported
(which represents Core FFO or the
equivalent measure per SNL Financial)
during the periods indicated. Core FFO
per Share Growth for each year within the
timeframe presented may vary.
3. NAV PER SHARE GROWTH: The
compound annual growth rate of Net Asset
Value (NAV) per share. NAV per share
growth for each year within the timeframe
presented may vary.
Avalon Falls Church
Falls Church, VA
AVA Brew at AVA Dobro
Brooklyn, NY
FFO RECONCILIATION TO NET INCOME
(Dollars in thousands, except per share data)
2015
2014
Net income attributable to common
stockholders
$742,038
$683,567
Depreciation - real estate assets,
including discontinued operations and
joint venture adjustments
Distributions to noncontrolling interests,
including discontinued operations
Gain on sale of unconsolidated entities
holding previously depreciated real
estate assets
486,019
449,769
38
35
(33,580)
(73,674)
Gain on sale of previously depreciated
real estate assets (1)
(115,625)
(108,662)
Impairment due to casualty loss
4,195
-
FFO attributable to common
stockholders
$1,083,085
$951,035
Average shares outstanding - diluted
134,593,177
131,237,502
Earnings per share - diluted
FFO per common share - diluted
$5.51
$8.05
$5.21
$7.25
(1) Full Year 2014 includes the impact of the noncontrolling portion of the gain on sale of community owned
by Fund I that was consolidated for financial reporting purposes.
CORE FFO RECONCILIATION TO FFO
(Dollars in thousands, except per share data)
2015
2014
FFO, actual
Adjusting items
$1,083,085
$951,035
Joint venture gains(1)
(9,059)
(5,174)
Casualty and impairment gain, net(2)
(16,247)
(2,494)
Lost NOI from casualty losses
7,862
-
Early extinguishment of consolidated
borrowings
Gain on sale of real estate
Joint venture promote
Income taxes(3)
Development pursuit and other
write-offs(4)
Acquisition costs(5)
Severance related costs
(26,736)
(9,647)
412
(490)
(21,969)
(58,128)
1,103
1,838
3,806
1,999
9,243
2,564
(7,682)
815
Core FFO
$1,016,035
$890,101
Average shares outstanding - diluted
134,593,177 131,237,502
Core FFO per share
$7.55
$6.78
(1) Amounts for 2015 and 2014 are composed primarily of the Company's proportionate share of
gains and operating results for joint ventures formed with Equity Residential as part of the Archstone
acquisition in 2013.
(2) Full year 2015 amount is composed primarily of property damage and business interruption insurance
proceeds, partially offset by costs from the fire at Avalon at Edgewater.
(3) Amounts for 2015 and 2014 are composed of income taxes paid by the Company which are not
considered to be a component of primary operations.
(4) Composed of the write-off of capitalized pursuit costs for Development Rights as well as the write-off of
certain retail tenant improvements at an operating community in 2014.
(5) Amounts for 2014 include property tax refunds for Archstone communities for periods prior to
acquisition in 2013.
8
9
AVALONBAY | 2015 Annual Report
BOARD OF DIRECTORS
Timothy J. Naughton (4)
Chairman of the Board,
Chief Executive Officer & President,
AvalonBay Communities, Inc.
Glyn F. Aeppel (2, 4)
Chief Executive Officer & President,
Glencove Capital
A hotel investment and advisory company
Terry S. Brown (2, 4)
Chairman of the Board &
Chief Executive Officer,
Asana Partners
A real estate investment company
EXECUTIVE OFFICERS
Timothy J. Naughton
Chairman, Chief Executive Officer
& President
Kevin P. O’Shea
Chief Financial Officer
Matthew H. Birenbaum
Chief Investment Officer
Alan B. Buckelew (2, 4)
Chief Operating Officer,
Carnival Corporation & plc
A global cruise line
Lance R. Primis (3, 5)
Managing Partner,
Lance R. Primis and Partners, LLC
A management consulting firm
Ronald L. Havner, Jr. (2, 4)
Chairman of the Board,
Chief Executive Officer & President,
Public Storage, Inc.
A real estate investment trust
Peter S. Rummell (4, 5)
Private Investor
H. Jay Sarles (1, 3, 5)
Private Investor
John J. Healy, Jr. (2, 5)
Private Investor
W. Edward Walter (3, 4)
Chief Executive Officer & President,
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 Governance Commitee
Sean J. Breslin
Chief Operating Officer
Michael M. Feigin
Chief Construction Officer
Leo. S. Horey III
Chief Administrative Officer
William M. McLaughlin
Executive Vice President Development –
Northeast
Edward M. Schulman
Executive Vice President
General Counsel & Secretary
Stephen W. Wilson
Executive Vice President Development –
West Coast & Mid-Atlantic
Keri A. Shea
Senior Vice President - Finance & Treasurer
(Principal Accounting Officer)
our purpose:
CREATING A BETTER WAY TO LIVE
our core values:
Commitment to Integrity Focus on Continuous Improvement Spirit of Caring
INVESTOR INFORMATION
Corporate Office
AvalonBay Communities, Inc.
671 North Glebe Road, Suite 800
Arlington, VA 22203
Phone: 703.329.6300
Website
www.avalonbay.com
Common Stock Listing
(Symbol: AVB)
New York Stock Exchange
Investor Relations Contact
Jason Reilley
AvalonBay Communities, Inc.
671 North Glebe Road, Suite 800
Arlington, VA 22203
Phone: 703.329.6300
Email: ir@avalonbay.com
Form 10-K
A copy of the Company’s Annual Report
on Form 10-K as filed with the Securities
and Exchange Commission is being
distributed with this Annual Report and
also may be obtained without charge by
contacting Investor Relations.
Transfer Agent
Computershare Shareowner Services
Regular Mail
P.O. Box 30170
College Station, TX 77842
Overnight Delivery
211 Quality Circle, Suite 210
College Station, TX 77842
Phone: 866.230.0668
www.computershare.com
Forward-Looking Statements
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 discussion titled “Forward-
Looking Statements” on page 61 of our
accompanying Annual Report on Form
10-K for a discussion regarding risks
associated with these statements.
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
SNL Financial.
The Stock Performance Graph
provides a comparison, from December
2010 through December 2015, of the
cumulative total shareholder return
(assuming reinvestment of dividends)
among the Company, a peer group index
(the FTSE NAREIT Apartment REIT Index)
that includes the Company, and the S&P
500 based on an initial purchase price
of $100. The FTSE NARIET 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
STOCK PERFORMANCE
$250
$200
$150
$100
$50
Dec 2010
Dec 2011
Dec 2012
Dec 2013
Dec 2014
Dec 2015
• AvalonBay • FTSE NAREIT Apartment • S&P 500
Period Ending
12-31-10
12-31-11
12-31-12
12-31-13
12-31-14
12-31-15
AvalonBay Communities, Inc.
FTSE NAREIT Apartment REIT Index
S&P 500
$100
100
100
119
115
102
128
123
118
115
115
157
164
161
178
190
188
181
10
11
AVALONBAY | 2015 Annual Report
12
AVALONBAY | 2015 Annual Report