AvalonBay Communities, Inc. Announces 2012 Operating Results, Dividend Increase and Initial 2013 Financial Outlook

  AvalonBay Communities, Inc. Announces 2012 Operating Results, Dividend
  Increase and Initial 2013 Financial Outlook

Business Wire

ARLINGTON, Va. -- January 30, 2013

AvalonBay Communities, Inc. (NYSE: AVB) (the “Company”) reported today that
Net Income Attributable to Common Stockholders (“Net Income”) for the quarter
ended December 31, 2012 was $122,356,000. This resulted in Earnings per Share
– diluted (“EPS”) of $1.19 for the quarter ended December 31, 2012, compared
to EPS of $3.38 for the comparable period of 2011, a decrease of 64.8%. For
the year ended December 31, 2012, EPS was $4.32 compared to $4.87 for the
comparable period of 2011, a decrease of 11.3%.

The decreases in EPS for the quarter and year ended December 31, 2012 from the
prior year periods are due primarily to decreases in real estate asset sales
and related gains coupled with capital markets activity and acquisition costs
for the expected Archstone Acquisition (as defined below). These declines are
offset in part by increases in Net Operating Income (“NOI”) from existing and
newly developed and acquired communities and a decline in net interest
expense.

Funds from Operations attributable to common stockholders - diluted (“FFO”)
per share for the quarter ended December 31, 2012 increased 6.7% to $1.27 from
$1.19 for the comparable period of 2011. FFO per share for the year ended
December 31, 2012 increased 16.4% to $5.32 from $4.57 for 2011. Adjusting for
the non-routine items in this release, FFO per share would have increased for
the three months and full year ended December 31, 2012 by 15.9% and 18.5%,
respectively over the comparable period in 2011.

The following table compares the Company’s actual results for the quarter and
year ended December 31, 2012 to the outlook provided in its third quarter 2012
earnings release in October 2012:


                                                    Per Share
                                                     4Q12       2012
                                                                           
Projected FFO per share - October 2012 Outlook (1)   $ 1.43      $ 5.47
Archstone Acquisition related costs (2)                (0.16 )     (0.14 )
Superstorm Sandy expenses                              (0.01 )     (0.02 )
Joint Venture promote and overhead                    0.01      0.01  
FFO per share reported results                       $ 1.27     $ 5.32  
                                                                           

(1) Represents the mid-point of the Company's October 2012 Outlook.

(2) Consists primarily of impact of capital markets activity and professional
fees related to the expected Archstone Acquisition.

Commenting on the Company’s results, Tim Naughton, CEO and President, said,
“Our fourth quarter results capped a year of solid performance marked by our
second consecutive year of double-digit FFO growth. We expect apartment
fundamentals to remain healthy in 2013 and in anticipation of continued growth
in 2013 from our development platform, our current communities and the
addition of the Archstone portfolio, our Board approved a 10.3% increase to
our quarterly dividend.”

Operating Results for the Quarter Ended December 31, 2012 Compared to the
Prior Year Period

For the Company, including discontinued operations, total revenue increased by
$20,249,000, or 7.9% to $275,772,000. For Established Communities, rental
revenue increased 5.0%, attributable to increases in average rental rates of
4.7% and Economic Occupancy of 0.3%. As a result, total revenue for
Established Communities increased $9,324,000 to $194,332,000. Operating
expenses for Established Communities increased $1,672,000, or 3.0%, to
$57,925,000. Accordingly, NOI for Established Communities increased by 5.9%,
or $7,652,000, to $136,407,000.

The following table reflects the percentage changes in rental revenue,
operating expenses and NOI for Established Communities for the fourth quarter
of 2012 compared to the fourth quarter of 2011:


Q4 2012 Compared to Q4 2011
                                   
                 Rental    Operating           % of
                 Revenue   Expenses    NOI     NOI^(1)
                                               
New England      3.1   %   3.9   %     2.7  %  18.9  %
Metro NY/NJ      4.8   %   (0.9  %)    7.5  %  30.8  %
Mid-Atlantic     1.8   %   5.6   %     0.5  %  12.3  %
Pacific NW       11.1  %   (6.1  %)    19.1 %  3.7   %
No. California   9.5   %   2.8   %     12.1 %  19.8  %
So. California   4.8   %   12.1  %     1.9  %  14.5  %
Total            5.0   %   3.0   %     5.9  %  100.0 %
                                               

(1) Total represents each region's % of total NOI from the Company, including
discontinued operations.

Operating Results for the Year Ended December 31, 2012 Compared to the Prior
Year Period

For the Company, including discontinued operations, total revenue increased by
$74,656,000, or 7.5% to $1,064,033,000. For Established Communities, rental
revenue increased 5.8%, attributable to increases in average rental rates of
5.6% and Economic Occupancy of 0.2%. Total revenue for Established Communities
increased $41,672,000 to $763,405,000. Operating expenses for Established
Communities increased $4,106,000, or 1.8%, to $231,537,000. Accordingly, NOI
for Established Communities increased by 7.6%, or $37,566,000, to
$531,868,000.

The following table reflects the percentage changes in rental revenue,
operating expenses and NOI for Established Communities for the year ended
December 31, 2012 as compared to the year ended December 31, 2011:

                                           
Full Year 2012 Compared to Full Year 2011
                                                
                 Rental    Operating            % of
                 Revenue   Expenses    NOI      NOI^(1)
                                                
New England      4.2   %   3.0   %     4.9  %   19.2  %
Metro NY/NJ      5.5   %   1.3   %     7.3  %   30.1  %
Mid-Atlantic     3.6   %   4.7   %     3.2  %   12.7  %
Pacific NW       9.6   %   (1.8  %)    15.0 %   3.7   %
No. California   10.1  %   0.7   %     14.0 %   19.8  %
So. California   4.9   %   0.6   %     7.0  %   14.5  %
Total            5.8   %   1.8   %     7.6  %   100.0 %
                                                

(1) Total represents each region's % of total NOI from the Company, including
discontinued operations.

Development and Redevelopment Activity

During the fourth quarter of 2012, the Company started the construction of
three communities: Avalon Wharton, located in Wharton, NJ, Avalon Ossining,
located in Ossining, NY, and AVA Little Tokyo, located in Los Angeles, CA.
These three communities will contain 696 apartment homes when completed, and
will be developed for an estimated Total Capital Cost of $202,800,000. During
2012, the Company started construction of 12 communities which will contain a
total of 3,290 apartment homes for an expected aggregate Total Capital Cost of
$891,300,000.

During the fourth quarter of 2012, the Company completed the development of
two communities: Avalon Green II, located in Greenburgh, NY and Avalon at
Wesmont Station I, located in Wood-Ridge, NJ. These two communities contain
710 apartment homes and were constructed for an aggregate Total Capital Cost
of $166,100,000. During 2012, the Company completed the construction of eight
communities containing 1,934 apartment homes for a Total Capital Cost of
$513,100,000.

The Company also acquired four land parcels during the quarter ended December
31, 2012 for an aggregate purchase price of approximately $24,700,000. The
Company has started or anticipates starting construction in 2013 on three of
these land parcels.

During the fourth quarter of 2012, the Company commenced the redevelopment of
two communities that contain 1,096 apartment homes and will be redeveloped for
an estimated Total Capital Cost of $31,700,000, excluding costs incurred prior
to redevelopment.

During the fourth quarter of 2012, the Company completed the redevelopment of
four communities, two under our AVA brand and two under our Avalon brand.
These communities contain 1,111 apartment homes and were redeveloped for an
aggregate Total Capital Cost of $41,300,000, excluding costs incurred prior to
redevelopment.

During 2012, the Company completed the redevelopment of eleven communities
containing 2,903 apartment homes for a Total Capital Cost of $105,900,000,
excluding costs incurred prior to redevelopment.

Archstone Acquisition

As disclosed in November 2012, the Company and Equity Residential Trust agreed
to acquire all of the assets and assume all of the liabilities of Archstone
Enterprise LP ("Archstone"). Under the Company's agreements related to this
transaction, the Company will acquire, directly and indirectly, approximately
40% of the assets and assume 40% of the liabilities of Archstone (the
"Archstone Acquisition").

The Company expects to provide the following consideration for the Archstone
Acquisition:

  *the issuance of 14,889,706 shares of its common stock to Lehman Brothers
    Holdings Inc. (“Lehman”);
  *cash payment of $669,000,000;
  *the assumption of indebtedness discussed under “2013 Financial Outlook”;
  *an obligation to pay, when presented for redemption from time to time,
    approximately $132,200,000 in respect of the liquidation value of and
    accrued dividends on outstanding Archstone preferred units; and
  *the assumption of 40% of all other liabilities, known or unknown, of
    Archstone, other than certain excluded liabilities.

Acquisition Activity

During the fourth quarter of 2012, the Company acquired Eaves Burlington,
located in Burlington, MA. Eaves Burlington is a garden-style community
consisting of 203 apartment homes and was acquired for a purchase price of
$40,250,000.

Disposition Activity

During the fourth quarter of 2012, the Company sold two communities: Avalon
Wildreed and Avalon Highgrove, both located in Everett, WA. These communities,
containing a total of 625 apartment homes, were sold for an aggregate sales
price of $94,500,000. The dispositions resulted in an aggregate gain in
accordance with GAAP of $50,080,000 and an Economic Gain of $28,735,000. The
weighted average Initial Year Market Cap rate for these two communities was
5.3%, and the unleveraged IRR over a 12.2 year average holding period was
9.4%.

Also during the fourth quarter of 2012, AvalonBay Value Added Fund, L.P.
(“Fund I”), a private discretionary real estate investment vehicle in which
the Company holds an equity interest of approximately 15%, sold three
communities: Avalon Paseo Place, located in Fremont, CA, Avalon Skyway,
located in San Jose, CA, and Avalon at Aberdeen Station, located in Aberdeen,
NJ. These communities, containing a total of 772 apartment homes, were sold
for $187,150,000. The Company’s share of the gain in accordance with GAAP was
$6,501,000.

In conjunction with the disposition of these communities, Fund I repaid
$89,142,000 of related secured indebtedness in advance of the scheduled
maturity dates. This resulted in charges for prepayment penalties and a write
off of deferred financing costs, of which the Company’s portion was
approximately $530,000, and was reported as a reduction of Joint Venture
Income.

Additionally, in the fourth quarter of 2012, the Company recognized income
from a residual profit interest of $1,857,000 related to the sale of a
community in Kirkland, WA, which the Company had developed and managed for an
unrelated third party.

In January 2013, Fund I sold Avalon Yerba Buena, located in San Francisco, CA.
This community contains 160 apartment homes and 32,000 square feet of retail
space, and was sold for $103,000,000.

Also, in January 2013, AvalonBay Value Added Fund II, L.P. (“Fund II”) sold
Avalon Rothbury, located in Gaithersburg, MD. Avalon Rothbury contains 205
apartment homes and was sold for $39,600,000.

Financing, Liquidity and Balance Sheet Statistics

In December 2012, the Company entered into an amendment to increase its
borrowing capacity under its unsecured credit facility from $750,000,000 to
$1,300,000,000. In addition, the Company extended the term of the credit
facility from September 2015 to April 2017, with two further six month
extension options available. As part of the amendment, the Company’s current
margin over LIBOR decreased from 1.075% to 1.05%, and its annual facility fee
decreased from 17.5 basis points to 15.0 basis points.

At December 31, 2012, the Company had no amounts outstanding under its
$1,300,000,000 unsecured credit facility.

At December 31, 2012, the Company had $2,783,651,000 in unrestricted cash and
cash in escrow.

Unencumbered NOI as a percentage of total NOI generated by real estate assets
for the year ended December 31, 2012 was 73%. Interest Coverage for the fourth
quarter of 2012 was 4.7 times.

New Financing and Refinancing Activity

To pre-fund the expected Archstone Acquisition, the Company raised equity and
debt in the fourth quarter of 2012 as summarized below.

  *The Company issued 16,675,000 shares of its common stock at a per share
    price of $130.00, resulting in net proceeds after fees and expenses of
    approximately $2,102,718,000.
  *The Company also issued $250,000,000 principal amount of unsecured notes
    under its existing shelf registration statement. The unsecured notes
    mature in March 2023 and were issued at a 2.85% coupon rate. The notes
    have an effective interest rate of 3.00%, including the effect of fees and
    expenses.

Separately, the Company repaid $201,600,000 principal amount of its 6.125%
coupon unsecured notes pursuant to their scheduled maturity in November 2012.

First Quarter 2013 Dividend Declaration

The Company’s Board of Directors declared a dividend for the first quarter of
2013 of $1.07 per share of the Company’s common stock (par value of $0.01 per
share). The declared dividend is a 10.3% increase over the Company’s prior
quarterly dividend of $0.97 per share. The dividend is payable on April 15,
2013 to common stockholders of record as of March 29, 2013.

In declaring the increased dividend, the Board of Directors evaluated the
Company’s past performance and future prospects for earnings growth.
Additional factors considered in determining the increase included current
common dividend distributions, the ratio of the current common dividend
distribution to the Company’s FFO, the relationship of dividend distributions
to taxable income, distribution requirements under rules governing real estate
investment trusts, and expected growth in taxable income.

2013 Financial Outlook

The following presents the Company’s financial outlook for 2013, the details
of which are summarized in the full Earnings Release. All amounts presented,
unless otherwise indicated, include the impact of the expected Archstone
Acquisition discussed in this release.

In setting operating expectations for 2013, management considered third party
macroeconomic forecasts, local market conditions and performance at individual
communities. Management expects continued, moderate economic growth for 2013.
Positive annual rental revenue growth in our Established Communities is
expected in all regions. Projected EPS is expected to be within a range of
$2.28 to $2.64 for the full year 2013.

The Company expects 2013 Projected FFO per share to be in the range of $4.11
to $4.47 representing a 19.4% decrease from full year 2012 FFO per share of
$5.32, at the midpoint of the range. This outlook for projected EPS and
Projected FFO per share for 2013 includes the cash charge for transaction
costs and prepayment fees from the repayment of assumed indebtedness
associated with the Archstone Acquisition.

For the first quarter of 2013, the Company expects projected loss per share,
diluted within a range of $1.31 to $1.27. The Company expects Projected FFO
per share in the first quarter of 2013 to be a loss within a range of $0.66 to
$0.62. This outlook includes the expected first quarter 2013 cash charge for
transaction costs and prepayment fees from the repayment of assumed
indebtedness associated with the Archstone Acquisition. The Company has
assumed that substantially all of the transaction costs and prepayment
penalties associated with the Archstone Acquisition will be incurred in the
first quarter of 2013. The recognition of such charges is subject to
uncertainty and may be recognized in future quarters.

The Company’s 2013 financial outlook is based on a number of assumptions and
estimates, which are provided in the full earnings release. The primary
assumptions and estimates include the following:

Property Operations

  *The Company expects an increase in Established Communities’ rental revenue
    of 3.5% to 5.0%.
  *The Company expects an increase in Established Communities’ operating
    expenses of 3.0% to 4.0%.
  *The Company expects an increase in Established Communities’ NOI of 4.0% to
    5.5%.

Development

  *The Company currently has 23 communities under development and expects to
    acquire certain communities that Archstone currently has under
    development. Including development opportunities the Company expects to
    acquire from Archstone, the Company anticipates starting between
    $1,400,000,000 and $1,600,000,000 of new development during 2013.
  *The Company expects to disburse between $1,200,000,000 and $1,400,000,000
    related to current and expected development communities including the
    incremental spend for Archstone development communities the Company
    expects to acquire, and the cost of acquiring land for future development.
  *The Company expects to complete the development of nine communities
    currently under construction and one community currently being constructed
    by Archstone for an aggregate Total Capital Cost of approximately
    $575,000,000.

Redevelopment Activity

The Company currently has five communities under redevelopment and expects to
invest between $75,000,000 and $125,000,000 in its redevelopment communities
during 2013.

Acquisition & Disposition Activity

The Company expects to complete the Archstone Acquisition during the first
quarter of 2013, and expects the acquisition will consist primarily of direct
and indirect interests in operating and development communities as discussed
by the Company in its November 26, 2012 press release.

The final composition of assets, both wholly owned and those owned through
joint ventures, that the Company will acquire under the Archstone Acquisition
is subject to change through and up to the closing of the expected
acquisition.

In addition to the communities it expects to acquire as part of the Archstone
Acquisition and excluding transactions that have closed and are discussed in
this Earnings Release, the Company expects to be active in both acquisition
and disposition activity for its wholly owned portfolio in 2013. This
activity, detailed in the following paragraphs, pertains primarily to
continued portfolio shaping and repositioning and considers the impact of
communities we expect to acquire as part of the Archstone Acquisition.

  *The Company anticipates selling approximately $700,000,000 of operating
    communities. The Company’s expected sales for 2013 include approximately
    $300,000,000 of operating communities that we expect to either acquire as
    part of the Archstone Acquisition and sell immediately following the
    Archstone Acquisition, or which will be sold prior to the Archstone
    Acquisition.
  *The Company expects to acquire approximately $300,000,000 of operating
    communities in addition to the Archstone Acquisition.
  *The Company expects Fund I to continue to sell operating communities, with
    an additional $150,000,000 of planned sales in 2013, of which the
    Company’s indirect ownership interest is approximately 15%.

Capital Markets

The Company expects to assume indebtedness under the Archstone Acquisition
with a fair value of approximately $4,100,000,000, consisting of
$3,700,000,000 principal amount for consolidated borrowings, $238,300,000
principal amount for our proportionate share of debt related to unconsolidated
joint ventures, and $197,500,000 representing the amount by which the fair
value of the aforementioned debt exceeds the principal face value. The Company
expects to repay approximately $1,700,000,000 principal amount of this assumed
indebtedness concurrent with or immediately following the Archstone
Acquisition.

In addition to the common shares the Company expects to issue to Lehman and
the net amount of indebtedness the Company expects to assume in conjunction
with the Archstone Acquisition, the Company expects to raise between
$700,000,000 and $900,000,000 of new capital in 2013.

Based on changes in the Company’s capital markets outlook for 2013, coupled
with its current liquidity position, a previously planned 2013 debt issuance
subject to an interest rate protection agreement put in place in 2011 is no
longer anticipated to occur. As a result the Company anticipates recognizing a
charge of approximately $55,000,000 in 2013, as reflected in its 2013 outlook.

Impact of Archstone Acquisition

The Company’s outlook includes the expected operating results from the
Archstone Acquisition for the 10 months of 2013 subsequent to the expected
acquisition on March 1, 2013. In addition, the Company’s 2013 outlook includes
the following impacts of its actual and expected capital markets activity
associated with the Archstone Acquisition:

  *Issuance of common stock in November 2012, that will be outstanding for
    the full year 2013,
  *expected issuance of common shares to Lehman on March 1, 2013, which will
    be outstanding for one month in the first quarter of 2013 and for 10
    months during 2013, and
  *interest recognized on the $250 million of debt securities issued in
    December 2012.

The expected Archstone Acquisition also includes several non-routine charges
that are included in the Company’s 2013 outlook as discussed in this release.
The table below details the expected non-routine items included in the
Company’s 2013 outlook, which are predominantly those expected to be incurred
as a result of the Archstone Acquisition.

                                                                 
                                                        Projected FFO / Share
                                                        1Q13            2013
                                                                        
Projected FFO per share (1)                             $ (0.64 )       $ 4.29
                                                                        
Non-routine items (estimated):
                                                                        
Acquisition and other non-routine costs                   1.03            0.99
Debt prepayment penalties and hedge unwind                0.94            0.87
                                                                       
                                                                        
Projected FFO per share after non-routine items         $ 1.33         $ 6.15
(2)


(1) Represents the mid-point of the Company's 2013 outlook.

(2) If the Company had not entered into the Archstone Acquisition agreement
and not incurred the related pursuit costs and capital markets activity, the
Company estimates that its Projected FFO per share for 2013 would have been
$5.90.

First Quarter 2013 Conference Schedule

Management is scheduled to present at Citi’s Global Property CEO Conference
from March 3 – 6, 2013. Management may discuss the Company’s current operating
environment; operating trends; development, redevelopment, disposition and
acquisition activity; financial outlook; portfolio strategy and other business
and financial matters affecting the Company. Details on how to access a
webcast of the Company’s presentation will be available in advance of the
conference event at the Company’s website at http://www.avalonbay.com/events.

Other Matters

The Company will hold a conference call on January 31, 2013 at 1:00 PM ET to
review and answer questions about this release, its fourth quarter and full
year 2012 results, the Attachments (described below) and related matters. To
participate on the call, dial 877-510-2397 domestically and 763-416-6924
internationally, and use Conference ID: 86328657.

To hear a replay of the call, which will be available from January 31, 2013 at
5:00 PM ET to February 6, 2013 at 11:59 PM ET, dial 855-859-2056 domestically
and 404-537-3406 internationally, and use Access Code: 86328657. A webcast of
the conference call will also be available at
http://www.avalonbay.com/earnings, and an on-line playback of the webcast will
be available for at least 30 days following the call.

The Company produces Earnings Release Attachments (the "Attachments") that
provide detailed information regarding operating, development, redevelopment,
disposition and acquisition activity. These Attachments are considered a part
of this earnings release and are available in full with this earnings release
via the Company's website at http://www.avalonbay.com/earnings. To receive
future press releases via e-mail, please submit a request through
http://www.avalonbay.com/email.

About AvalonBay Communities, Inc.

As of December 31, 2012, the Company owned or held a direct or indirect
ownership interest in 203 apartment communities containing 59,391 apartment
homes in nine states and the District of Columbia, of which 23 communities
were under construction and five communities were under reconstruction. The
Company is an equity REIT in the business of developing, redeveloping,
acquiring and managing apartment communities in high barrier-to-entry markets
of the United States. More information may be found on the Company’s website
at http://www.avalonbay.com. For additional information, please contact Jason
Reilley, Director of Investor Relations at 1-703-317-4681.

Forward-Looking Statements

This release, including its Attachments, 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. You can
identify these forward-looking statements by the Company’s use of words such
as “expects,” “plans,” “estimates,” “anticipates,” “projects,” “intends,”
“believes,” “outlook” and similar expressions that do not relate to historical
matters. Actual results may differ materially from those expressed or implied
by the forward-looking statements as a result of risks and uncertainties,
which include 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.

In addition, any forward-looking statements or forecasts relating to the
business, prospects, operating statistics or financial results that relate to
or may be expected to result from the Archstone Acquisition are based on
expectations, forecasts and assumptions that are inherently speculative and
are subject to substantial risks and uncertainties, many of which we cannot
predict with accuracy and some of which we may not have anticipated. As a
result, the actual operating statistics and financial results that relate to
or may be expected to result from the Archstone Acquisition may differ
materially from the Company’s forecasts. Risks, uncertainties 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 that we currently expect; 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; obtaining joint venture partner
consents to the assumption of partnership interest related to the Archstone
Acquisitions 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 related to the Archstone Acquisition
for which we may be responsible that were unknown to us at the time we agreed
to the Archstone Acquisition or at the time of this release; and 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.

Additional discussions of risks and uncertainties appear in the Company’s
filings with the Securities and Exchange Commission, including the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2011 under
the heading “Risk Factors,” under the heading “Management’s Discussion and
Analysis of Financial Condition and Results of Operations - Forward-Looking
Statements,” and in other disclosures contained in our subsequent Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K, including but not
limited to our Current Report on Form 8-K filed with the Securities and
Exchange Commission on November 26, 2012. The Company does not undertake a
duty to update forward-looking statements, including its expected 2013
operating results and other financial data forecasts contained in this release
(including, without limitation, forward-looking statements in this release
relating to the Archstone Acquisition). The Company may, in its discretion,
provide information in future public announcements regarding its outlook that
may be of interest to the investment community. The format and extent of
future outlooks may be different from the format and extent of the information
contained in this release.

Definitions and Reconciliations

Non-GAAP financial measures and other capitalized terms, as used in this
earnings release, are defined and further explained on Attachment 17,
“Definitions and Reconciliations of Non-GAAP Financial Measures and Other
Terms.” Attachment 17 is included in the full earnings release available at
the Company’s website at http://www.avalonbay.com/earnings. This wire
distribution includes only definitions and reconciliations of the following
non-GAAP financial measures:

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 the Company as Net income or loss attributable to common
stockholders computed in accordance with GAAP, 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.
A reconciliation of FFO to Net income attributable to common stockholders is
as follows (dollars in thousands):



                                                                 
                 Q4               Q4                 Full Year      Full Year
                 2012             2011              2012          2011         
                                                                       
Net income
attributable     $ 122,356         $ 323,085        $ 423,869        $ 441,622
to common
stockholders
Depreciation -
real estate
assets,
including          66,036            65,053           265,627          256,986
discontinued
operations and
joint venture
adjustments
Distributions
to
noncontrolling
interests,         7                 7                28               27
including
discontinued
operations
Gain on sale
of
unconsolidated
entities
holding            (6,501      )     (1,319     )     (7,972     )     (3,063     )
previously
depreciated
real estate
assets
Gain on sale
of previously
depreciated        (51,262     )     (273,415   )     (146,311   )     (281,090   )
real estate
assets
Gain on
acquisition of
unconsolidated     --                --               (14,194    )     --
real estate
entity
                                                                
FFO
attributable     $ 130,636        $ 113,411       $ 521,047       $ 414,482    
to common
stockholders
                                                                       
Average shares
outstanding -      102,863,336       95,509,173       98,025,152       90,777,462
diluted
                                                                       
Earnings per
share -          $ 1.19           $ 3.38          $ 4.32          $ 4.87       
diluted
                                                                       
FFO per common
share -          $ 1.27           $ 1.19          $ 5.32          $ 4.57       
diluted

The Company’s results for the quarter and year ended December 31, 2012 and the
comparable prior year periods include the non-routine items outlined in the
following table:

                                                           
                                                                
Non-Routine Items
Decrease (Increase) in Net Income and FFO
(dollars in thousands)
                                                                
              Q4                Q4             Full Year        Full Year
               2012            2011          2012           2011       
                                                                
Acquisition   $ 9,704           $ -            $ 9,965          $ 1,010
costs (1)
Asset
reductions      3,321             -              3,321            14,052
(2)
Prepayment
penalties
and write
off of          288               5,820          2,070            5,820
deferred
financing
costs
Joint
venture
related         (1,290      )     1,088          (4,995     )     1,493
gains and
costs (3)
Legal
settlements
and             -                 500            1,362            100
severance
related
costs
Gain on
sale of         -                 -              (280       )     (13,716    )
land
Interest
income on       -                 -              -                (2,478     )
escrow
                                                                
                                                             
Total
non-routine   $ 12,023         $ 7,408        $ 11,443        $ 6,281      
items
                                                                
Weighted
Average
Dilutive
Shares          102,863,336       95,509,173     98,025,152       90,777,462
Outstanding
                                                                
Incremental
Shares for
expected        4,893,750                        1,230,123
Archstone
Acquisition
(4)
                                                                


(1) Amounts for 2012 consist primarily of capital markets related costs and
professional fees incurred for the expected Archstone Acquisition.

(2) Amounts for 2012 include losses incurred related to Superstorm Sandy, and
the write off of certain costs related to a commercial tenant. Amounts for
2011 relate to the impairment of unimproved land parcels.

(3) Represents the Company's proportional share of gains and related costs for
joint venture acquisition and disposition activity.

(4) Represents the increase in weighted average outstanding shares issued in
connection with the expected Archstone Acquisition.

Projected FFO, as provided within this release in the Company’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 first quarter and full year 2013
to the range provided for projected earnings (loss) per share (diluted) is as
follows:

                                                             
                                                     Low        High
                                                     Range      Range
                                                                
Projected loss per share (diluted) - Q1 2013         ($1.31 )   ($1.27 )
Projected depreciation (real estate related)         0.67       0.67
Projected gain on sale of operating communities      (0.02  )   (0.02  )
                                                                
Projected FFO loss per share (diluted) - Q1 2013     ($0.66 )   ($0.62 )
                                                                
                                                                
Projected EPS (diluted) - Full Year 2013             $2.28      $2.64
Projected depreciation (real estate related)         2.59       2.95
Projected gain on sale of operating communities      (0.76  )   (1.12  )
                                                                
Projected FFO per share (diluted) - Full Year 2013   $4.11     $4.47  

NOI is defined by the Company 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. The Company 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, as well as
a breakdown of NOI by operating segment, is as follows (dollars in thousands):

                                                                                                          
                                                                                                                               
                                                                                                                               
                            Q4            Q4             Q3            Q2            Q1            Full Year      Full Year
                             2012       2011        2012       2012       2012       2012        2011     
                                                                                                                               
Net income                  $ 122,384     $ 322,965      $ 86,747      $ 156,821     $ 57,609      $ 423,562      $ 441,370
Indirect operating
expenses, net of              7,862         8,096          7,396         8,617         8,036         31,911         30,550
corporate income
Investments and
investment management         1,545         1,266          1,582         1,499         1,446         6,071          5,126
expense
Expensed acquisition,
development and other         9,601         330            608           901           239           11,350         2,967
pursuit costs
Interest expense, net         36,117        37,640         33,985        33,193        33,626        136,920        167,814
Loss on extinguishment of     --            1,940          --            --            1,179         1,179          1,940
debt, net
General and                   7,703         7,847          8,372         8,316         9,710         34,101         29,371
administrative expense
Joint venture loss            (11,113 )     (1,607   )     (5,553  )     (2,073  )     (2,175  )     (20,914  )     (5,120   )
(income)
Depreciation expense          65,567        60,996         65,005        63,882        61,571        256,026        239,060
Casualty and impairment       1,449         --             --            --            --            1,449          14,052
loss
Gain on sale of real          (51,262 )     (273,415 )     --            (95,329 )     --            (146,591 )     (294,806 )
estate assets
(Income) loss from            (2,885  )     (1,272   )     (2,315  )     (3,363  )     (3,935  )     (12,495  )     (7,880   )
discontinued operations
Gain on acquisition of
unconsolidated real          --          --           (14,194 )    --          --          (14,194  )    --       
estate entity
                                                                                                                               
NOI from continuing         $ 186,968    $ 164,786     $ 181,633    $ 172,464    $ 167,306    $ 708,375     $ 624,444  
operations
                                                                                                                               
Established:
New England                 $ 28,033      $ 27,299       $ 27,374      $ 27,263      $ 26,631      $ 109,301      $ 104,229
Metro NY/NJ                   40,766        37,922         40,356        39,955        38,947        160,026        149,088
Mid-Atlantic                  19,157        19,063         18,618        18,722        18,816        75,313         72,975
Pacific NW                    6,226         5,229          5,984         5,651         5,572         23,433         20,374
No. California                24,571        21,917         24,316        23,235        22,793        94,915         83,234
So. California               17,654      17,326       17,224      17,023      16,979      68,880       64,401   
Total Established            136,407     128,756      133,872     131,849     129,738     531,868      494,301  
Other Stabilized              22,778        18,881         23,078        20,722        20,141        86,722         69,328
Development/Redevelopment    27,783      17,149       24,683      19,893      17,427      89,785       60,815   
                                                                                                                               
NOI from continuing         $ 186,968    $ 164,786     $ 181,633    $ 172,464    $ 167,306    $ 708,375     $ 624,444  
operations
                                                                                                                               

NOI as reported by the Company does not include the operating results from
discontinued operations (i.e., assets sold during the period January 1, 2011
through December 31, 2012 or classified as held for sale at December 31,
2012). A reconciliation of NOI from communities sold or classified as
discontinued operations to Net Income for these communities is as follows
(dollars in thousands):

                                                              
                                   Q4        Q4        Full Year   Full Year
                                    2012     2011      2012       2011
                                                                             
                                                                             
Income from discontinued           $ 2,885   $ 1,272   $  12,495   $  7,880
operations
Interest expense, net                --        886        133         4,808
Loss on extinguishment of debt       --        3,880      602         3,880
Depreciation expense                197      2,318     4,068      11,209
                                                                             
NOI from discontinued operations   $ 3,082   $ 8,356   $  17,298   $  27,777
                                                                             
NOI from assets sold                 1,027     6,465      9,486       20,484
NOL from assets held for sale       2,055    1,891     7,812      7,293
                                                                             
NOI from discontinued operations   $ 3,082   $ 8,356   $  17,298   $  27,777

Projected NOI, as used within this release for certain development communities
and in calculating the Initial Year Market Cap Rate for dispositions,
represents management’s estimate, as of the date of this release (or as of the
date of the buyer’s valuation in the case of dispositions), of projected
stabilized rental revenue minus projected stabilized operating expenses. For
development communities, Projected NOI is calculated based on the first twelve
months of stabilized operations following the completion of construction. In
calculating the Initial Year Market Cap Rate, Projected NOI for dispositions
is calculated for the first twelve months following the date of the buyer’s
valuation. Projected stabilized rental revenue represents management’s
estimate of projected gross potential minus projected stabilized economic
vacancy and adjusted for projected stabilized concessions plus projected
stabilized other rental revenue. 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. Projected gross potential for development communities
and dispositions is based on leased rents for occupied homes and management’s
best estimate of rental levels for homes which are currently unleased, as well
as those homes which will become available for lease during the twelve month
forward period used to develop Projected NOI. The weighted average Projected
NOI as a percentage of Total Capital Cost is weighted based on the Company’s
share of the Total Capital Cost of each community, based on its percentage
ownership.

Management believes that Projected NOI of the development communities, on an
aggregated weighted average basis, assists investors in understanding
management's estimate of the likely impact on operations of the development
communities when the assets are complete and achieve stabilized occupancy
(before allocation of any corporate-level property management overhead,
general and administrative costs or interest expense). However, in this
release the Company has not given a projection of NOI on a company-wide basis.
Given the different dates and fiscal years for which NOI is projected for
these communities, the projected allocation of corporate-level property
management overhead, general and administrative costs and interest expense to
communities under development is complex, impractical to develop, and may not
be meaningful. Projected NOI of these communities is not a projection of the
Company's overall financial performance or cash flow. There can be no
assurance that the communities under development or redevelopment will achieve
the Projected NOI as described in this release.

Rental Revenue with Concessions on a Cash Basis is considered by the Company
to be a supplemental measure to rental revenue in conformity with GAAP to help
investors evaluate the impact of both current and historical concessions on
GAAP-based rental revenue and to more readily enable comparisons to revenue as
reported by other companies. In addition, rental revenue (with concessions on
a cash basis) allows an investor to understand the historical trend in cash
concessions.

A reconciliation of rental revenue from Established Communities in conformity
with GAAP to rental revenue (with concessions on a cash basis) is as follows
(dollars in thousands):

                                                            
                       Q4            Q4            Full Year     Full Year
                        2012        2011        2012        2011    
                                                                             
Rental revenue (GAAP   $ 194,266     $ 184,947     $ 763,125     $ 721,427
basis)
Concessions              50            433           404           4,010
amortized
Concessions granted     (54     )    (88     )    (191    )    (1,318  )
                                                                             
Rental revenue (with
concessions on a       $ 194,262    $ 185,292    $ 763,338    $ 724,119 
cash basis)
                                                                             
% change -- GAAP         5.0     %                   5.8     %
revenue
                                                                             
% change -- cash         4.8     %                   5.4     %
revenue
                                                                             

Economic Gain (Loss) is calculated by the Company as the gain (loss) 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 (Loss) to be an
appropriate supplemental measure to gain (loss) on sale in accordance with
GAAP because it helps investors to understand the relationship between the
cash proceeds from a sale and the cash invested in the sold community. The
Economic Gain (Loss) for each of the communities presented is estimated based
on their respective final settlement statements. A reconciliation of Economic
Gain (Loss) to gain on sale in accordance with GAAP for the quarter ended
December 31, 2012 as well as prior years’ activities is presented in the full
earnings release.

Interest Coverage is calculated by the Company as 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 or loss attributable to the Company
before interest income and expense, income taxes, depreciation and
amortization.

A reconciliation of EBITDA and a calculation of Interest Coverage for the
fourth quarter of 2012 are as follows (dollars in thousands):

                                               
Net income attributable to common stockholders   $ 122,356
Interest expense, net                              36,117
Depreciation expense                               65,567
Depreciation expense (discontinued operations)    197
                                                 
EBITDA                                           $ 224,237
                                                 
EBITDA from continuing operations                $ 169,893
EBITDA from discontinued operations               54,344
                                                 
EBITDA                                           $ 224,237
                                                 
EBITDA from continuing operations                $ 169,893
                                                 
Interest expense, net                            $ 36,117
                                                 
                                                 
Interest coverage                                 4.7
                                                   

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.

Initial Year Market Cap Rate is defined by the Company as Projected NOI of a
single community for the first 12 months of operations (assuming no
repositioning), less estimates for non-routine allowance of approximately $200
- $300 per apartment home, divided by the gross sales price for the community.
Projected NOI, as referred to above, represents management’s estimate of
projected rental revenue minus projected operating expenses before interest,
income taxes (if any), depreciation, amortization and extraordinary items. For
this purpose, management’s projection of operating expenses for the community
includes a management fee of 3.0% -  3.5%. The Initial Year Market Cap Rate,
which may be determined in a different manner by others, is a measure
frequently used in the real estate industry when determining the appropriate
purchase price for a property or estimating the value for a property. Buyers
may assign different Initial Year Market Cap Rates to different communities
when determining the appropriate value because they (i) may project different
rates of change in operating expenses and capital expenditure estimates and
(ii) may project different rates of change in future rental revenue due to
different estimates for changes in rent and occupancy levels. The weighted
average Initial Year Market Cap Rate is weighted based on the gross sales
price of each community.

Unleveraged IRR on sold communities refers to the internal rate of return
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 release 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.

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
full year ended December 31, 2012 is as follows (dollars in thousands):

                                              
                                                
                                                
                                                
NOI for Established Communities                 $ 531,868
NOI for Other Stabilized Communities              86,722
NOI for Development/Redevelopment Communities     89,785
NOI for discontinued operations                  17,298  
Total NOI generated by real estate assets       $ 725,673
NOI on encumbered assets                         195,001 
NOI on unencumbered assets                      $ 530,672 
                                                
                                                
Unencumbered NOI                                 73      %

Established Communities are identified by the Company as communities where a
comparison of operating results from the prior year to the current year is
meaningful, as these communities were owned and had stabilized operations of
the beginning of the prior year. Therefore, for 2012, Established Communities
are consolidated communities that have stabilized operations as of January 1,
2011 and are not conducting or planning to conduct substantial redevelopment
activities within the current year. Established Communities do not include
communities that are currently held for sale or planned for disposition during
the current year.

Economic Occupancy is defined as total possible revenue less vacancy loss as a
percentage of total possible revenue. Total possible revenue is determined by
valuing occupied units at contract rates and vacant units at market rents.
Vacancy loss is determined by valuing vacant units at current market rents. By
measuring vacant apartments at their market rents, Economic Occupancy takes
into account the fact that apartment homes of different sizes and locations
within a community have different economic impacts on a community’s gross
revenue.

Contact:

AvalonBay Communities, Inc.
Director of Investor Relations
Jason Reilley, 1-703-317-4681
 
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