AvalonBay Announces Agreement to Acquire 40% of Archstone; Affirms 2012 Full Year Outlook; and Announces Expected 2013 Dividend

  AvalonBay Announces Agreement to Acquire 40% of Archstone; Affirms 2012 Full
  Year Outlook; and Announces Expected 2013 Dividend Increase

Business Wire

ARLINGTON, Va. -- November 26, 2012

AvalonBay Communities, Inc. (NYSE: AVB) along with Equity Residential (NYSE:
EQR) announced today that the companies entered into an agreement
(“Agreement”) with Lehman Brothers Holdings, Inc. (“Lehman”) to acquire the
assets and liabilities of Archstone Enterprise LP (“Archstone”), which consist
principally of a portfolio of high quality apartment communities in major
markets in the United States, for approximately $16 billion in the aggregate.
Under the terms of the Agreement, AvalonBay will acquire approximately 40% of
Archstone’s assets and liabilities and Equity Residential will acquire
approximately 60% of Archstone’s assets and liabilities. The transaction is
expected to close during the first quarter of 2013.

The combined purchase price for the assets consists of (i) $2.7 billion in
cash, (ii) a stipulated fixed number of shares of AvalonBay and Equity
Residential common stock valued at $3.8 billion as of the market’s close on
Friday, November 23, 2012, (iii) the assumption of approximately $9.5 billion
of consolidated and unconsolidated debt at Archstone’s share, and (iv)
preferred equity units with a redemption value of $330 million as of September
30, 2012. Of the debt to be assumed, approximately $8.6 billion is held by the
Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan
Mortgage Corporation (“Freddie Mac”), each of which has provided written
consent to the assumption of this debt by AvalonBay and Equity Residential,
subject to satisfactory documentation. The debt from Fannie Mae and Freddie
Mac, as well as the other debt to be assumed, includes certain tax exempt
bonds and other single asset loans for which additional consents will be
needed from parties such as bond issuers, joint venture partners and debt
servicers. The weighted average Capitalization Rate (as defined later in this
press release) for the entire portfolio is projected to be in the high 4%

AvalonBay’s portion of the purchase price consists of (i) $669 million in
cash, (ii) 14,889,706 shares of AvalonBay common stock, valued at $1.9 billion
as of the market’s close on Friday, November 23, 2012 of $128.54 per share,
(iii) the assumption of indebtedness with a face value of approximately $3.9
billion, (iv) obligations related to preferred equity units with a redemption
value of $132 million as of September 30, 2012, and (v) the assumption of 40%
of all other liabilities, known and unknown, of Archstone, other than certain
excluded liabilities. The $3.9 billion debt assumption consists of (i) $3.7
billion in principal amount for consolidated borrowings and (ii) $238 million
in principal amount for our proportionate share of debt related to
unconsolidated joint ventures. Contemporaneously with entering into the
Agreement with the seller, AvalonBay has also obtained a commitment from
Goldman Sachs Lending Partners LLC to provide a $2.2 billion bridge loan
facility, which has been sized appropriately should the additional lender
consents, noted above, not be received.

Commenting on the Agreement, Tim Naughton, AvalonBay’s CEO and President said,
“This acquisition accelerates our strategic growth vision of more deeply
penetrating our core, high barrier-to-entry coastal markets. This is a rare
opportunity to acquire a high quality portfolio of apartment communities
concentrated in our markets, to better achieve our geographic portfolio
allocation goals, to enhance operating efficiencies and to further advance our
multi-brand strategy.”

Transaction Details

Under the agreement, AvalonBay will purchase the following:

  *66 apartment communities, containing 22,222 apartment homes, of which six
    communities are under construction and are expected to contain 1,666
    apartment homes upon completion, as detailed in the following table:

Market                    Properties       Number of Homes
New England               2                548
Metro NY/NJ               4                1,573
Mid-Atlantic              18               5,311
Pacific Northwest         2                588
Northern California       9                3,251
Southern California       23               8,507
Non-Core                  2                778
Development               6                1,666
Total                     66               22,222

  *Three parcels of land, which if developed as anticipated, are expected to
    contain a total of 968 apartment homes;
  *Interests in joint ventures in which we expect to be the general partner
    or managing member, which own 10 apartment communities, containing 2,040
    apartment homes, of which one community is under construction and is
    expected to contain 157 apartment homes upon completion;
  *Through a 40% ownership interest in joint venture arrangements with Equity
    Residential, certain other assets that will be jointly managed until sold
    or subsequently transferred to AvalonBay or Equity Residential.

The following table depicts the approximate allocation of AvalonBay’s


                                                              Value (1)

                                                                 $'s in (000)s
Consolidated stabilized assets                                   $ 6,140,323
Development communities under construction                       308,819
Land held for future development                                 49,800
Net equity in unconsolidated joint ventures plus allocable       410,112
venture debt
Total                                                            $ 6,909,054

(1) Value is based on the closing price of our common stock on November 23,
2012 and the debt to be assumed after a $198 million adjustment to the face
value of debt to reflect debt at fair market value.

The following table provides the percentage of Net Operating Income (“NOI”, as
defined later in this press release) generated during the nine months ended
September 30, 2012, by region, for consolidated operating communities, as well
as communities that were under construction, purchased or sold or for which
substantial redevelopment is planned or that occurred during 2012, pro forma
for the Archstone Portfolio (dollars in thousands):

                     AvalonBay               Archstone Portfolio     Pro Forma
                     Communities             (1)
Region/Portfolio     NOI YTD       % of      NOI YTD       % of      NOI YTD       % of
(2)                              Total                 Total                 Total
                     2012 (3)                2012 (3)                2012 (3)
$'s in (000)s                      NOI                     NOI                     NOI
New England          $ 99,277      19%       $ 7,433       3%        $ 106,710     14%
Metro NY/NJ            156,135     29%         31,336      15%         187,471     25%
Mid-Atlantic           71,401      13%         61,727      29%         133,128     18%
Pacific                27,241      5%          5,471       3%          32,712      4%
Northern               102,335     19%         31,544      15%         133,879     18%
Southern               74,287      14%         72,910      34%         147,197     20%
Non-Core and           447         0%          5,227       2%          5,674       1%
Total NOI            $ 531,123     100%      $ 215,648     100%      $ 746,771     100%

(1) NOI for the nine months ended September 30, 2012 for the Archstone
Portfolio includes $26 for communities under construction.

(2) NOI for the nine months ended September 30, 2012 for consolidated
apartment communities, excluding NOI from apartment communities in joint

(3) GAAP net income for AvalonBay, the Archstone Portfolio Acquisition, and on
a pro forma basis, assuming the acquisition of the portfolio was $301,178,
$43,425 and $344,603, respectively, for the nine months ended September 30,

2012 Outlook Reaffirmed

AvalonBay reaffirms its previously disclosed fourth quarter and full year 2012
Earnings per Share – diluted (“EPS”) and Funds from Operations attributable to
common stockholders – diluted (“FFO”) (as defined later in this press release)

  *For the fourth quarter of 2012, including the impact of Hurricane Sandy,
    AvalonBay expects EPS of $1.34 to $1.39. AvalonBay expects EPS for the
    full year 2012 to be in the range of $4.47 to $4.52.
  *For the fourth quarter of 2012, including the impact of Hurricane Sandy,
    AvalonBay expects Projected FFO of $1.40 to $1.45. AvalonBay expects
    Projected FFO for the full year 2012 to be in the range of $5.45 to $5.50.

2013 Dividend Increase

AvalonBay expects to increase the common stock dividend for the first quarter
of 2013 by a range of between 8% and 12%. This increase is supported by
AvalonBay’s current operating platform and recent operating trends, the
expectation for continued favorable apartment fundamentals in 2013 and the
acquisition of the Archstone portfolio described in this press release. The
payment of any dividend, however, is subject to the approval of the Board of
Directors and there can be no assurance that economic conditions generally
and/or their impact on our operating results and payout ratio will not lead us
to change our expectations.

Joint Venture Arrangements with Equity Residential

As previously discussed in this press release, some Archstone assets will be
placed in joint venture arrangements co-owned by AvalonBay and Equity
Residential. These assets include Archstone’s interests in unconsolidated
joint ventures that own properties in various U.S. markets as well as
Archstone’s interest in a portfolio of apartment communities in Germany.
AvalonBay will maintain a 40% interest and Equity Residential will maintain a
60% interest in these joint venture arrangements. The companies will co-manage
these assets until they are sold or assigned out to AvalonBay or Equity
Residential. The combined gross value for both companies is approximately $500
million, with a net value (after considering debt at share) of approximately
$170 million.

Other Matters

Lehman has agreed that, as of today, it will not sell or hedge shares of the
Company’s common stock until April 26, 2013. AvalonBay has agreed that it will
enter into a Registration Rights Agreement with Lehman to help facilitate its
sale of the shares acquired in the transaction.

In the event that the Agreement is terminated by Lehman due to the failure of
AvalonBay and Equity Residential to perform their obligations under the
Agreement, AvalonBay and Equity Residential will be required to pay to Lehman
liquidated damages of $800 million (or $650 million if the agreement is
terminated in the first 60 days). AvalonBay and Equity Residential have agreed
that they will share any such liquidated damages in accordance with their 40%
and 60% interests in the Agreement, unless one party is determined to be
solely responsible for the termination.

Conference Call

There will be a conference call hosted by Timothy J. Naughton, CEO and
President of AvalonBay, and David J. Neithercut, CEO and President of Equity
Residential, at 4:30 pm Eastern this afternoon to discuss the transaction. To
listen to the call, dial 1-866-589-2723 domestically and 1-706-645-4945
internationally, and use Conference ID: 74790864. This call will also be web
cast. Links for the web cast can be found in the investor section of each
company’s website.


Greenhill & Co., LLC acted as financial advisor to AvalonBay and also provided
a fairness opinion. Goodwin Procter LLP served as AvalonBay’s legal advisor on
these transactions. Morgan Stanley & Co. LLC served as Equity Residential’s
exclusive financial advisor and Hogan Lovells US LLP and Morrison & Foerster
LLP as its legal advisors on these transactions. Gleacher & Company served as
Lehman’s lead financial advisor and Citigroup and J.P. Morgan Securities LLC
also advised; Weil, Gotshal & Manges served as Lehman's legal advisor.

About AvalonBay Communities

AvalonBay Communities, Inc. is a real estate investment trust (a “REIT”)
focused on developing, redeveloping, acquiring and managing high-quality
apartment communities in high barrier-to-entry markets of the United States.
These markets are in the Northeast, Mid Atlantic, Pacific Northwest, Northern
California and Southern California. As of September 30, 2012, the Company
owned or held a direct or indirect ownership interest in 205 apartment
communities containing 60,101 apartment homes in nine states and the District
of Columbia of which 22 communities were under construction and seven
communities were under reconstruction.

Forward-Looking Statements

This release contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, with respect to the financial
condition, results of operations and businesses of AvalonBay and the Archstone
acquisition. These forward-looking statements, which can be identified by the
use of words such as “expects,” “plans,” “estimates,” “anticipates,”
“projects,” “intends,” “believes,” outlook” and similar expressions that do
not relate to historical matters, are based on current expectations, forecasts
and assumptions which may not be realized and involve risks and uncertainties,
many of which cannot be predicted with accuracy and some of which might not
even be anticipated, that could cause actual outcomes and results, financial
and otherwise, to differ materially, including statements related to the
closing of the Archstone acquisition. Risks and other factors related to the
Company that might cause such differences include, among others, the
following: we may abandon development or redevelopment opportunities for which
we have already incurred costs; adverse capital market conditions may affect
our access to various sources of capital and/or cost of capital, which may
affect our business activities, earnings and common stock price, among other
things; changes in local employment conditions, demand for apartment homes,
supply of competitive housing products, and other economic conditions may
result in lower than expected occupancy and/or rental rates and adversely
affect the profitability of our communities; delays in completing development,
redevelopment and/or lease-up may result in increased financing and
construction costs and may delay and/or reduce the profitability of a
community; debt and/or equity financing for development, redevelopment or
acquisitions of communities may not be available or may not be available on
favorable terms; we may be unable to obtain, or experience delays in
obtaining, necessary governmental permits and authorizations; and increases in
costs of materials, labor or other expenses may result in communities that we
develop or redevelop failing to achieve expected profitability. Any
forward-looking statements or forecasts relating to the business, prospects,
operating statistics or financial results relating to the Archstone
acquisition are based on assumptions and are inherently speculative, are
subject to substantial uncertainty, and the actual operating statistics and
financial results may differ materially from AvalonBay’s forecasts. Risks and
other factors related to the Archstone acquisition that might cause such
differences include, among other things the following, the Archstone
acquisition may not close at the time or on the terms currently expected;
assumptions concerning the availability and/or terms of financing, including
among other things, obtaining lender consents to the assumption of
indebtedness, related to the Archstone acquisition may not be realized; we may
not be able to integrate the assets and operations acquired in the Archstone
acquisition in a manner consistent with our assumptions and/or we may fail to
achieve expected efficiencies and synergies; we may encounter liabilities for
which we are responsible that were unknown at the time we agreed to the
Archstone acquisition; our assumptions concerning risks relating to our lack
of control of joint ventures and our ability to successfully dispose of
certain assets may not be realized. In addition, AvalonBay’s forecasts are
subject to a variety of additional factors and risks, including the risks set
forth under “Risk Factors” in AvalonBay’s Form 10-K, and in AvalonBay’s other
periodic and Form 8-K filings with the Securities and Exchange Commission.
AvalonBay undertakes no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or the
occurrence of unanticipated events except as required by applicable law.

Definitions and Reconciliations

This release includes the definitions and reconciliations of the following
non-GAAP financial measures and other capitalized terms:

Capitalization Rate is defined by AvalonBay as NOI as a percentage of the
purchase price after making adjustments to historical NOI to reflect
anticipated growth rates in rental rates as well as reserves for capital
expenditures, property management fees, and other market conventions to
estimate future stabilized NOI.

FFO is determined based on a definition adopted by the Board of Governors of
the National Association of Real Estate Investment Trusts (“NAREIT”). FFO is
calculated by AvalonBay as net income or loss attributable to common
stockholders computed in accordance with GAAP (“Net Income”), adjusted for
gains or losses on sales of previously depreciated operating communities,
extraordinary gains or losses (as defined by GAAP), cumulative effect of a
change in accounting principle, impairment write-downs of depreciable real
estate assets, write-downs of investments in affiliates which are driven by a
decrease in the value of depreciable real estate assets held by the affiliate
and depreciation of real estate assets, including adjustments for
unconsolidated partnerships and joint ventures. Management generally considers
FFO to be an appropriate supplemental measure of operating performance
because, by excluding gains or losses related to dispositions of previously
depreciated operating communities and excluding real estate depreciation
(which can vary among owners of identical assets in similar condition based on
historical cost accounting and useful life estimates), FFO can help one
compare the operating performance of a company’s real estate between periods
or as compared to different companies.

Projected FFO as provided within this release in AvalonBay’s outlook, is
calculated on a basis consistent with historical FFO, and is therefore
considered to be an appropriate supplemental measure to projected Net Income
from projected operating performance. A reconciliation of the range provided
for Projected FFO per share (diluted) for the third quarter and full year 2012
to the range provided for projected EPS (diluted) is as follows:

                                                       Low           High
                                                       range         range
Projected EPS (diluted) - Q4 2012                      $ 1.34        $ 1.39
Projected depreciation (real estate related)             0.67          0.72
Projected gain on sale of operating communities         (0.61 )      (0.66 )
Projected FFO per share (diluted) - Q4 2012            $ 1.40       $ 1.45  
Projected EPS (diluted) - Full Year 2012               $ 4.47        $ 4.52
Projected depreciation (real estate related)             2.74          2.79
Projected gain on sale of operating communities         (1.76 )      (1.81 )
Projected FFO per share (diluted) - Full Year 2012     $ 5.45       $ 5.50  

NOI is defined by AvalonBay as total property revenue less direct property
operating expenses (including property taxes), and excludes corporate-level
income (including management, development and other fees), corporate-level
property management and other indirect operating expenses, investments and
investment management expenses, expensed development and other pursuit costs,
net interest expense, gain (loss) on extinguishment of debt, general and
administrative expense, joint venture income (loss), depreciation expense,
impairment loss on land holdings, gain on sale of real estate assets and
income from discontinued operations. AvalonBay considers NOI to be an
appropriate supplemental measure to Net Income of operating performance of a
community or communities because it helps both investors and management to
understand the core operations of a community or communities prior to the
allocation of corporate-level property management overhead or general and
administrative costs. This is more reflective of the operating performance of
a community, and allows for an easier comparison of the operating performance
of single assets or groups of assets. In addition, because prospective buyers
of real estate have different overhead structures, with varying marginal
impact to overhead by acquiring real estate, NOI is considered by many in the
real estate industry to be a useful measure for determining the value of a
real estate asset or groups of assets. A reconciliation of NOI (from
continuing operations) to Net Income is as follows (dollars in thousands):

                                  For the nine months ended September 30, 2012
                                  Company                          Company
                                  Historical                       Pro Forma
                                                  Pro Forma
Income from continuing            $ 203,259       $   43,425       $ 246,684
Discontinued operations             97,919            -              97,919
Net income                        $ 301,178       $   43,425         344,603
Indirect operating expenses,        24,049            -              24,049
net of corporate income
Investment and investment           4,526             -              4,526
management expense
Expensed development and            1,749             -              1,749
other pursuit costs
Interest expense, net               100,804           57,139         157,943
Loss on extinguishment of           1,179             -              1,179
debt, net
General and administrative          26,398            1,605          28,003
Equity in income of                 (9,801  )         7,274          (2,528  )
unconsolidated entities
Depreciation expense                193,434           106,206        299,640
Impairment loss - land              -                 -              -
Gain on sale of real estate         (95,329 )         -              (95,329 )
Income from discontinued            (2,870  )         -              (2,870  )
Gain on acquisition of              (14,194 )         -              (14,194 )
unconsolidated entity
Net operating income              $ 531,123      $   215,648      $ 746,771 

       Copyright © 2012 AvalonBay Communities, Inc. All Rights Reserved


AvalonBay Communities, Inc.
Timothy J. Naughton
Chief Executive Officer and President
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