Avalon Glendora Glendora, CA
2016 ANNUAL REPORT
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 that do not have
these characteristics.
AVALONBAY HAS A 23 YEAR HISTORY OF
OUTPERFORMANCE AND STRONG DIVIDEND GROWTH
TOTAL SHAREHOLDER RETURN SINCE IPO
REPRESENTS $100 INVESTED & THE REINVESTMENT OF DIVIDENDS
Source: S&P Global
2,000
1,500
1,000
500
-
400
300
200
100
-
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
• AVALONBAY • S&P 500
ANNUAL COMMON DIVIDENDS PAID
INDEXED TO 100 IN 1994
Source: S&P Global
23 YEAR CAGR = 5.4%
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
FINANCIAL HIGHLIGHTS
ANNUALIZED TOTAL SHAREHOLDER RETURN(1)
Source: S&P Global
18.0%
13.2%
8.9%
14.3%
9.7% 11.7%
7.3%
7.0%
5.0%
3 YEAR
5 YEAR
10 YEAR
• AVB • MSCI US REIT INDEX (“RMZ”) • S&P 500
ANNUALIZED CORE FFO PER SHARE GROWTH(2)
Source: S&P Global
9.5%
8.2%
12.0%
9.3%
6.8%
4.0%
3 YEAR
5 YEAR
10 YEAR
• AVALONBAY • MULTIFAMILY SECTOR WEIGHTED AVERAGE
2
2
A Company Record
2016 HIGHLIGHTS
TOTAL REVENUE
DEVELOPMENT COMPLETIONS
CORE FFO PER SHARE GROWTH
8.5%
$2 BILLON
$510 MILLON
$530 MILLON
9 COMMUNITIES
TOP 10%
LEED ENVIRONMENTAL CERTIFICATION
ASSOCIATE ENGAGEMENT (IBM Kenexa Survey)
STABILIZED COMMUNITY ACQUISITIONS
AVA Capitol Hill Seattle, WA
3
3
AVALONBAY | 2016 Annual Report DEAR SHAREHOLDERS
2016 HIGHLIGHTS
Operating & Financial Results
2016 was another strong year for AvalonBay. Our same-store
portfolio delivered a sixth consecutive year of healthy Net
Operating Income growth. We completed the development
of eight new communities containing over 1,700 apartment
homes, representing $510 million in total capital investment.
These new communities are projected to generate a weighted
average initial stabilized yield of 6.7%, 50 basis-points above our
initial expectations. We improved the quality of our portfolio
by purchasing five stabilized communities located in attractive,
infill submarkets for $530 million. In addition, we raised $1.35
billion of attractively priced capital to fund ongoing investment
and refinancing activity.
Together, these accomplishments led to an 8.5% increase in
Core FFO per share in 2016.
Sustainability
We also made important strides in other areas of our business
in 2016. We continued to scale our sustainability efforts by
completing 44 light emitting diode (LED) retrofits at existing
communities, and by achieving Leadership in Energy and
Environmental Design (LEED) certifications at nine recently
completed communities. Furthermore, for the first time we had
our energy, water, waste and greenhouse gas (GHG) emission
data
independently verified by Lloyd’s Register Quality
Assurance (LRQA) so that we can more accurately report on the
performance of our sustainability enhancements in the future.
Our heightened focus on providing sustainable communities
and living experiences for our residents was recognized in 2016.
For the second consecutive year, AvalonBay was awarded a
“Green Star” and identified as an industry leader by the Global
Real Estate Sustainability Benchmark (GRESB).
Associate Engagement
In 2016, we continued to nurture a culture that encourages
associates to perform at their best. Based on the results from
our 2016 Associate Perspective Survey, our associates remain
engaged and feel supported by their managers. We made
improvements in each of these areas from our 2015 survey
results and rank among the top 10% of all companies surveyed
by IBM-Kenexa. We believe this high-level of associate
engagement and strong alignment to our purpose of creating
a better way to live translates into higher customer satisfaction
and a strong online reputation.
Our Net Promoter Score (NPS), a key customer satisfaction
and loyalty metric, increased 400 basis-points from 2015. We
generated over 7,500 new online reviews on sites like Yelp and
Google at an average star rating of 4.2 out of 5, ranking us #1
among the top ten multifamily REITs(3) for online reputation.
Long-Term Performance
Our 2016 results continue a track record of delivering high-
quality results. Since the beginning of the current economic
cycle in 2010, the Company has increased its Core FFO and
dividend per share(4) by 12.8% and 8.0%, respectively, on a
compounded annual basis. We believe this performance not
only reflects the strength of the current economic expansion
and apartment cycle, but also our adherence to a disciplined,
time-tested strategy that has delivered annualized total
shareholder return of 11.2% and 12.9% over the last six and 20
years, respectively.
LOOKING FORWARD
2017 Outlook
We expect that moderate economic and job growth, improving
income growth, favorable demographics and delays in family
formation (e.g. marriage, children) will continue to support
healthy apartment demand. However, we believe an increase
in new apartment deliveries will temper rental revenue growth
across some of our markets.
In 2017, we anticipate breaking ground on ten new development
communities,
representing approximately $900 million
in projected total capital cost. All ten of these projected
development starts are located in supply-constrained, infill
suburban submarkets, where development economics are
currently most attractive. In addition, we expect to complete
the construction of a Company-record $1.7 billion of new
communities in 2017. Based on our projected development
starts and completions, we expect to end 2017 with $3.2 billion
of development under construction, representing approximately
10% of our Total Enterprise Value at year-end 2016.
Risk Management
We believe the Company is well positioned to execute on,
and pursue, attractive growth opportunities. At year-end
2016, our development rights pipeline consisted of 25 growth
opportunities, representing $3 billion in projected total
capital cost. Importantly, we controlled all but four of these
25 opportunities through purchase option contracts with
modest at-risk deposits. We plan to continue to structure
new development opportunities primarily as purchase option
contracts with modest at-risk deposits to preserve flexibility.
We expect to continue our practice of substantially match-
funding new investment commitments with long-term capital
in order to maintain financial flexibility, strong credit metrics
and attractive investment margins.
CONCLUSION
Favorable apartment fundamentals helped us deliver a sixth
consecutive year of healthy operating results in 2016. We
continued to invest in profitable development, improve the
quality of our portfolio through the transaction market and
scale our sustainability efforts. The returns on these investments
were further enhanced by our associates, who delivered another
year of exceptional customer service.
In 2017, we expect apartment demand to remain healthy but
anticipate that elevated apartment deliveries will temper growth
in some of our markets. We believe our accretive investment
platform will continue to contribute to Core FFO and NAV per
share growth, and we plan to remain well positioned to pursue
attractive investment opportunities.
Thank you for your continued support and confidence in our
future.
In addition, our balance sheet remains strong. At year-end 2016,
Net debt-to-Core EBITDA was 5.0x, Interest Coverage was 6.8x,
80% of NOI was unencumbered and our current development
activity was 80% match-funded with long-term capital.
TIMOTHY J. NAUGHTON
Chairman and CEO
Avalon Quincy
Quincy, MA
Avalon Dublin Station III
Dublin, CA
Avalon Clarendon
Arlington, VA
Avalon Irvine III
Irvine, CA
4
5
AVALONBAY | 2016 Annual Report Avalon Riverview North
Long Island City, NY
Avalon Falls Church
Falls Church, VA
Avalon Alderwood
Lynnwood, WA
Avalon Bear Hill
Waltham, MA
FINANCIALS
AVA DoBro
Brooklyn, NY
Avalon at Arlington Square
Arlington, VA
Avalon Potomac Yard
Alexandria, VA
Avalon Pasadena
Pasadena, CA
Studio 77
Hollywood, CA
66
AVALON BAY | 2016 Annual Report
TABLE OF CONTENTS
Form 10-K Page
DEFINITIONS AND RECONCILIATIONS
Of Non-GAAP Financial Measures and Other Terms
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
30
31
35
57
57
Consolidated Financial Statements
F-3
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, Core
Funds from Operations, 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.
CORE FFO RECONCILIATION TO NET INCOME (Dollars in thousands)
Net income attributable to common stockholders
Full Year 2016
Full Year 2015
Full Year 2010
$1,034,002
$742,038
$175,331
Depreciation - real estate assets, including discontinued operations & joint venture adjustments
538,606
486,019
237,041
Distributions to noncontrolling interests, including discontinued operations
Gain on sale of unconsolidated entities holding previously depreciated real estate
Gain on sale of previously depreciated real estate
Casualty and impairment (recovery) loss, net on real estate
FFO attributable to common stockholders
Adjusting Items
Joint venture losses (gains)
Impairment loss on real estate
Casualty loss (gain), net on real estate
Business interruption insurance proceeds
Lost NOI from casualty losses covered by business interruption insurance
Loss (gain) on extinguishment of consolidated debt
Acquisition costs
Severance related costs
Development pursuit and other write-offs
Joint venture promote
Loss (gain) on sale of other real estate
Legal settlements
Income taxes
Federal excise tax
Severe weather costs
Investment management fund transaction costs, net
Core FFO attributable to common stockholders
Average shares outstanding - diluted
Earnings per share- diluted
FFO per common share- diluted
Core FFO per common share- diluted
41
(58,069)
(374,623)
38
(33,580)
(115,625)
(4,195)
4,195
55
-
(74,074)
-
$1,135,762
$1,083,085
$338,353
$6,031
10,500
(10,239)
(20,565)
7,366
7,075
3,523
852
3,662
(7,985)
(10,224)
(417)
-
-
-
-
$(9,059)
800
(15,538)
(1,509)
7,862
(26,736)
3,806
1,999
1,838
(21,969)
(9,647)
-
1,103
-
-
-
$-
-
-
-
-
-
-
(1,550)
-
-
-
(927)
-
(235)
672
811
$1,125,341
$1,016,035
$337,124
137,461,637
134,593,177
84,632,869
$7.52
$8.26
$8.19
$5.51
$8.05
$7.55
$2.07
$4.00
$3.98
7
AVALONBAY | 2016 Annual Report Net income attributable to common stockholders
$242,235
NOI for Established Communities
Total Enterprise Value 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. A calculation of Total Enterprise
Value is as follows:
CALCULATION OF TOTAL ENTERPRISE VALUE
(Dollars in millions)
Quarter Ending 12/31/2016
Interest Coverage is calculated by the Company as Core EBITDA
divided by the sum of interest expense, net, and preferred dividends,
if applicable. The Company presents Interest Coverage 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 or
loss attributable to the Company before interest income and expense,
income taxes, depreciation and amortization. A reconciliation of
Core EBITDA and a calculation of Interest Coverage for the three
months ended December 31, 2016 are as follows:
Common stock
Operating partnership units
Total debt
Total Enterprise Value
$24,328
1
7,077
$31,406
INTEREST COVERAGE RECONCILIATION TO NET
INCOME (Dollars in thousands)
Quarter Ending
12/31/2016
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 2016 Core EBITDA, as adjusted. For a calculation of Core
EBITDA, see "Interest Coverage”. A calculation of Net Debt-to-Core
EBITDA is as follows:
CALCULATION OF NET DEBT-TO-CORE EBITDA
(Dollars in thousands)
Interest expense, net inclusive of loss on extin-
guishment of debt, net
Income tax expense
Depreciation expense
EBITDA
Quarter Ending 12/31/2016
NOI from real estate assets sold or held for sale
Total debt principal(1)
Cash and cash in escrow
Net debt
Core EBITDA
Core EBITDA, annualized
Net Debt-to-Core EBITDA
$7,076,758
(329,977)
$6,746,781
$339,055
$1,356,220
5.0x
(1) Balance at December 31, 2016 excludes $8,930 of debt discount and $27,768 of deferred
financing costs as reflected in unsecured notes, net, and $1,866 of debt premium and $11,046 of
deferred financing costs as reflected in notes payable, on the Condensed Consolidated Balance
Sheets. The debt premium is primarily related to above market interest rates on debt assumed in
connection with the Archstone acquisition.
Gain on sale of communities
Loss on sale of other real estate
Joint venture income
Consolidated EBITDA after disposition
activity
Lost NOI from casualty losses covered by
business interruption insurance
Business interruption insurance proceeds
View from Avalon North Station
Boston, MA
Acquisition costs
Severance related costs
Development pursuit and other write-offs
Legal settlements
Core EBITDA
Interest expense, net
Interest Coverage
54,262
210
140,020
$436,727
$(167)
(90,041)
697
(10,184)
$337,032
$1,786
(143)
959
(55)
(107)
(417)
$339,055
$49,648
6.8x
Unencumbered NOI as calculated by the Company represents NOI
generated by real estate assets unencumbered by outstanding secured debt
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 year ended December 31,
2016 is as follows:
CALCULATIONS OF UNENCUMBERED NOI
(Dollars in thousands)
Full Year 2016
$1,084,351
165,530
160,816
17,509
NOI for Other Stabilized Communities
NOI for Development/Redevelopment Communities
NOI from real estate assets sold or held for sale
Total NOI generated by real estate assets
$1,428,206
NOI on encumbered assets
NOI on unencumbered assets
Unencumbered NOI
281,142
1,147,064
80%
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 S&P
Global) during the periods indicated. Core
FFO per Share Growth for each year within the
timeframe presented may vary. The multifamily
sector weighted average includes AIV, CPT, EQR,
ESS, MAA and UDR and is weighted based on
total market capitalization per S&P Global as of
December 31, 2016. 2016 Core FFO per share,
or the equivalent measure, for CPT and EQR is
adjusted to account for large portfolio dispositions
that resulted in the payment of special dividends.
For the purpose of this calculation, the weighted
average share count used to calculate the Core
FFO per share amounts for CPT and EQR was
reduced by the estimated total amount of special
dividends paid (per share special dividend
multiplied by the quarterly weighted average share
count in which the special dividend was paid)
divided by the 20-day trailing average stock price
prior to the ex-dividend date.
3. As reported by Multifamily Executive.
4. Includes dividend increase announced by the
Company on February 1, 2017.
Avalon Hoboken
Hoboken, NJ
AVA Capitol Hill
Seattle, WA
eaves San Marcos
San Marcos, CA
8
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AVALONBAY | 2016 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
Alan B. Buckelew (2, 4)
Chief Information Officer,
Carnival Corporation & plc
A global cruise line
EXECUTIVE OFFICERS
Timothy J. Naughton
Chairman, Chief Executive Officer
& President
Kevin P. O’Shea
Chief Financial Officer
Matthew H. Birenbaum
Chief Investment Officer
Ronald L. Havner, Jr. (2, 4)
Chairman of the Board &
Chief Executive Officer,
Public Storage, Inc.
A real estate investment trust
Richard J. Lieb
Managing Director,
Chairman of Real Estate
Greenhill & Co., LLC
An investment bank
Lance R. Primis (3, 5)
Managing Partner,
Lance R. Primis and Partners, LLC
A management consulting firm
Peter S. Rummell (4, 5)
Private Investor
H. Jay Sarles (1, 3, 5)
Private Investor
Susan Swanezy
Partner
Hodes Weill & Associates, LP
A global advisory firm
W. Edward Walter (3, 5)
Professor, McDonough School of Business,
Georgetown University
(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 53 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
S&P Global Market Intelligence.
The Stock Performance Graph
provides a comparison, from December
2011 through December 2016, 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 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
STOCK PERFORMANCE
$250
$200
$150
$100
$50
2011
2012
2013
2014
2015
2016
• AvalonBay • FTSE NAREIT Apartment • S&P 500
Period Ending
AvalonBay Communities, Inc.
FTSE NAREIT Apartment REIT Index
S&P 500
2011
$100
100
100
2012
107
107
116
2013
96
100
154
2014
137
140
175
2015
159
163
177
2016
158
168
198
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AVALONBAY | 2016 Annual Report
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AVALONBAY | 2016 Annual Report