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AvalonBay Communities Inc.$179.66($.42)(.23%)

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 AvalonBay Communities, Inc. Announces 2016 Operating Results, 5.2% Dividend Increase and Initial 2017 Financial Outlook
   Wednesday, February 01, 2017 4:17:10 PM ET

AvalonBay Communities, Inc. (AVB ) (the "Company") reported today that Net Income Attributable to Common Stockholders for the three months ended December 31, 2016 was $242,235,000. This resulted in an increase in Earnings per Share - diluted ("EPS") of 55.8% to $1.76 for the three months ended December 31, 2016, from $1.13 for the prior year period.

Funds from Operations attributable to common stockholders - diluted ("FFO") per share for the three months ended December 31, 2016 increased 6.1% to $2.09 from $1.97 for the prior year period.

Core FFO per share (as defined in this release) for the three months ended December 31, 2016 increased 6.5% to $2.12 from $1.99 for the prior year period.



The increases in the Company’s EPS, FFO per share and Core FFO per share were due to an increase in Net Operating Income ("NOI") from newly developed and existing operating communities for the three months ended December 31, 2016 over the prior year period, partially offset by an increase in interest expense. The increases in EPS and FFO per share were also partially offset by a loss on extinguishment of debt. The change in EPS was also due to an increase in wholly-owned and joint venture real estate sales and related gains, partially offset by an increase in depreciation expense.

The following table compares the Company’s actual results for EPS, FFO per share and Core FFO per share for the fourth quarter of 2016 to its October 2016 outlook:

 
 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                            Fourth Quarter 2016 Results
                                                                                                                        Comparison to October 2016 Outlook
                                                                                                                                                                                     
                                                                                                                                                                               Per Share
                                                                                   ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                              EPS                                                        FFO                                           Core FFO
                                                                                   ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- ------------------------------------
                                                                                                                                                                                                                                                
Projected per share - October 2016 outlook (1)                                                        $           1.80                                                              $           2.09                                                              $           2.11
   Established Community NOI                                                                            --                                                                --                                                                --
   Other community NOI                                                                                            0.01                                                                          0.01                                                                          0.01
   Depreciation expense, real estate gains (losses) and other                                 (0.05 )                                 (0.01 )                        --
                                                                                   -------------------- -------------- -------------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------------- --------------
Q4 2016 per share reported results                                                                    $           1.76                        $           2.09                        $           2.12
                                                                                   ==================== ============== ==================== ==================== ==================== ============== ==================== ==================== ==================== ==============
                                                                                                                                                                                                                                                
(1) The mid-point of the Company’s October 2016 outlook.
 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 

For the year ended December 31, 2016, EPS increased 36.5% to $7.52 from $5.51 for the prior year. For the year ended December 31, 2016, FFO per share increased 2.6% to $8.26 from $8.05 for the prior year. For the year ended December 31, 2016, Core FFO per share increased 8.5% to $8.19 from $7.55 for the prior year.

The following table compares the Company’s actual results for EPS, FFO per share and Core FFO per share for the full year 2016 to its results for the full year 2015:

 
 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                      Full Year 2016 Results
                                                                                                                                   Comparison to Full Year 2015
 
                                                                                                                                                                     Per Share
                                                                                      ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             EPS                                                   FFO                                                     Core FFO
                                                                                      -------------------------------------------------------------------- ----------------------------------------------------------------------------- ---------------------------------------------------------
                                                                                                                                                                                                  
2015 per share reported results                                                                          $  5.51                                                              $           8.05                                                              $           7.55
   Established and Redevelopment Community NOI                                                              0.43                                                                          0.43                                                                          0.43
   Other community NOI                                                                                      0.67                                                                          0.67                                                                          0.67
   Capital markets and transaction activity                                                                (0.62 )                                                                       (0.62 )                                                                       (0.38 )
   Joint venture income and management fees                                                                (0.27 )                                                                       (0.27 )                                                                       (0.06 )
   Expensed acquisition costs, overhead and other                                                          (0.04 )                                                                       (0.04 )                                                                       (0.02 )
   Business interruption and property insurance proceeds, net of                                            0.10                                                                          0.04                                                                --
   impairment
   Gain on sale of real estate and depreciation expense                                  1.74       --       --  
                                                                                      -------------------- ----- -------------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------------- -------------- --------------------
2016 per share reported results                                                                          $  7.52                        $           8.26                        $           8.19  
                                                                                      ==================== ===== ==================== ==================== ==================== ============== ==================== ==================== ==================== ============== ====================
 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 

Operating Results for the Three Months Ended December 31, 2016 Compared to the Prior Year Period

For the Company, total revenue increased by $37,400,000, or 7.8%, to $518,240,000. This increase is primarily due to growth in revenue from development communities and stabilized operating communities.

For Established Communities, Average Rental Rates increased 3.2% and Economic Occupancy increased 0.1%, resulting in an increase in rental revenue of 3.3%. If the Company were to include current and previously completed redevelopment communities as part of its Established Communities portfolio, the increase in Established Communities’ rental revenue would have been 3.5%. Total revenue for Established Communities increased $12,504,000, or 3.3%, to $389,659,000. Operating expenses for Established Communities increased $5,517,000, or 5.1%, to $113,492,000. NOI for Established Communities increased $6,987,000, or 2.6%, to $276,167,000.

The following table reflects the percentage changes in rental revenue, operating expenses and NOI for Established Communities for the three months ended December 31, 2016 compared to the three months ended December 31, 2015:

 
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Q4 2016 Compared to Q4 2015
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                  Rental Revenue                                         
                                    -------------------------------------------------
                                     Avg Rent           Ec                              Opex (1)                         NOI                       % of
                                       Rates                               Occ                                                                                        NOI (2)
                                    --------                       ----------------                       --------                       ------                       -------------------
New England                          2.3 %                         -- %                        3.6 %                          1.7 %                             14.2 %
Metro NY/NJ                          2.0 %                                    0.5 %                        8.6 %                         (0.2 )%                            24.1 %
Mid-Atlantic                         2.4 %                                   (0.3 )%                       5.0 %                          1.0 %                             15.8 %
Pacific NW                           5.8 %                                    0.9 %                        8.2 %                          6.0 %                              5.3 %
No. California                       3.0 %                                    0.4 %                        1.0 %                          4.1 %                             20.5 %
So. California                       5.5 %                                   (0.2 )%                       4.9 %                          5.5 %                             20.1 %
                                    ---- ----                      -------------- --                      ---- ----                      ---- --                      ---------- ---------
   Total                             3.2 %                                    0.1 %                        5.1 %                          2.6 %                            100.0 %
                                    ==== ====                      ============== ==                      ==== ====                      ==== ==                      ========== =========
                                                                                                                                                                       
(1) See the full release for discussion of variances.
 
(2) Represents each region’s % of total NOI for Q4 2016, including
amounts related to communities that have been sold or that are
classified as held for sale.
 
------------------------------------------------------------------
 

Operating Results for the Year Ended December 31, 2016 Compared to the Prior Year

For the Company, total revenue increased by $189,227,000, or 10.2%, to $2,045,255,000. This increase is primarily due to growth in revenue from development communities and stabilized operating communities.

For Established Communities, Average Rental Rates increased 4.4%, and were partially offset by a decrease in Economic Occupancy of 0.1%, resulting in an increase in rental revenue of 4.3%. If the Company were to include current and previously completed redevelopment communities as part of its Established Communities portfolio, the increase in Established Communities’ rental revenue would have been 4.5%. Total revenue for Established Communities increased $63,478,000, or 4.3%, to $1,542,435,000. Operating expenses for Established Communities increased $13,872,000, or 3.1%, to $458,084,000. NOI for Established Communities increased $49,606,000, or 4.8%, to $1,084,351,000.

The following table reflects the percentage changes in rental revenue, operating expenses and NOI for Established Communities for the year ended December 31, 2016 compared to the year ended December 31, 2015:

 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                         Full Year 2016 Compared to Full Year 2015
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                             Rental Revenue                                             
                                    ---------------------------------------
                                     Avg Rent      Ec                              Opex (1)                             NOI                       % of
                                       Rates                          Occ                                                                                            NOI (2)
                                    --------                       ------                       ------------------                       -----                       -------------------
New England                          3.6 %                         (0.2 )%                                 0.6 %                         4.9 %                             14.2 %
Metro NY/NJ                          2.8 %                          0.1 %                                  5.7 %                         1.4 %                             24.3 %
Mid-Atlantic                         2.0 %                         (0.3 )%                                 2.2 %                         1.3 %                             15.2 %
Pacific NW                           6.2 %                          0.1 %                                  6.1 %                         6.5 %                              5.3 %
No. California                       6.9 %                         (0.2 )%                                 5.7 %                         7.0 %                             20.9 %
So. California                       6.5 %                         (0.2 )%                      -- %                         9.1 %                             20.1 %
                                    ---- ----                      ---- --                      -------------- ----                      --- --                      ---------- ---------
   Total                             4.4 %                         (0.1 )%                                 3.1 %                         4.8 %                            100.0 %
                                    ==== ====                      ==== ==                      ============== ====                      === ==                      ========== =========
                                                                                                                                                                      
(1) See the full release for discussion of variances.
 
(2) Represents each region’s % of total NOI for Full Year 2016,
including amounts related to communities that have been sold or that
are classified as held for sale.
 
--------------------------------------------------------------------
 

Development Activity

During the three months ended December 31, 2016, the Company started the construction of five communities:

-- 11 West 61st Street, located in New York, NY;

-- Avalon Belltown Towers, located in Seattle, WA;

-- Avalon Public Market, located in Emeryville, CA;

-- Avalon Teaneck, located in Teaneck, NJ; and

-- AVA Hollywood, located in Hollywood, CA.

These five communities will contain a total of 1,675 apartment homes and 97,000 square feet of retail space when completed, and will be developed for an aggregate estimated Total Capital Cost of $1,325,700,000.

The Company added two development rights which, if developed as expected, will contain 612 apartment homes and will be developed for an estimated Total Capital Cost of $233,000,000.

The projected Total Capital Cost of overall development rights decreased to $3.0 billion at December 31, 2016 from $3.9 billion at September 30, 2016.

During 2016, the Company:

-- completed the development of eight communities containing an aggregate of 1,715 apartment homes, for a Total Capital Cost of $510,800,000; and

-- commenced the development of nine communities, including one that is being developed within a joint venture, which in the aggregate are expected to contain 2,732 apartment homes and be completed for a Total Capital Cost of $1,588,600,000, including its share of the joint venture.

At December 31, 2016, the Company had 27 communities under construction expected to contain an aggregate of 9,129 apartment homes with an aggregate estimated Total Capital Cost of $3,993,700,000, including its share of joint ventures.

Acquisition Activity

During 2016, the Company acquired five communities containing an aggregate of 1,265 apartment homes and 40,000 square feet of retail space, for an aggregate purchase price of $532,350,000, which includes the assumption of two fixed rate mortgage loans, each secured by a single community, in the aggregate amount of $138,411,000.

Disposition Activity

Consolidated Apartment Communities

During the three months ended December 31, 2016, the Company sold two wholly-owned operating communities, Avalon Brandemoor I and II, located in Lynnwood, WA. In the aggregate, the two communities contain 506 apartment homes and were sold for $132,000,000, resulting in a gain in accordance with GAAP of $90,133,000 and an Economic Gain of $67,666,000. These communities generated an Unleveraged IRR of 12.2% over a weighted average investment period of 13.9 years.

During 2016, the Company sold seven wholly-owned operating communities, containing 2,051 apartment homes. These communities were sold for an aggregate sales price of $522,850,000 and a weighted average Initial Year Market Cap Rate of 5.3%, resulting in an aggregate gain in accordance with GAAP of $370,301,000 and an Economic Gain of $257,809,000. The seven communities yielded an Unleveraged IRR of 13.0% over a weighted average investment period of 15.3 years.

Unconsolidated Real Estate Investments

During the three months ended December 31, 2016, AvalonBay Value Added Fund II, L.P. ("Fund II"), a private discretionary real estate investment vehicle in which the Company holds an equity interest of approximately 31.3%, sold one community containing 210 apartment homes for a sales price of $61,400,000. The Company’s share of the gain in accordance with GAAP was $4,897,000. In conjunction with the disposition, Fund II repaid $29,057,000 of related secured indebtedness in advance of the scheduled maturity date. This resulted in charges for a prepayment penalty and write-off of deferred financing costs, of which the Company’s portion was $98,000, reported as a reduction of joint venture income. Fund II distributed the proceeds from the sale, of which the Company received $14,850,000. The Company’s share of the distribution included $6,600,000 for an incentive distribution, of which $4,538,000 was recognized as income from the Company’s promoted interest in the three months ended December 31, 2016.

During 2016, real estate ventures in which the Company had a direct investment sold five communities containing 1,975 apartment homes for an aggregate sales price of $612,250,000, resulting in an aggregate gain in accordance with GAAP for the Company of $58,069,000. In conjunction with the dispositions, the real estate ventures in which the Company had a direct investment repaid $251,070,000 of related secured indebtedness. This resulted in charges for prepayment penalties and the write-off of deferred financing costs, of which the Company’s portion was $3,771,000, reported as a reduction of joint venture income. In conjunction with two of the Fund II dispositions, Fund II distributed the proceeds from the sales, of which the Company received $50,797,000. The Company’s share of the distributions included $11,614,000 for incentive distributions, of which $7,985,000 was recognized as income from the Company’s promoted interest in 2016.

Liquidity and Capital Markets

At December 31, 2016, the Company did not have any borrowings outstanding under its $1,500,000,000 unsecured credit facility, and had $329,977,000 in unrestricted cash and cash in escrow.

The Company’s annualized Net Debt-to-Core EBITDA for the fourth quarter of 2016 was 5.0 times.

During the three months ended December 31, 2016, the Company issued the following unsecured notes in public offerings under its existing shelf registration statement.

-- $300,000,000 principal amount of unsecured notes were issued for net proceeds of approximately $297,117,000. The notes mature in October 2026 and were issued at a 2.90% coupon interest rate.

-- $350,000,000 principal amount of unsecured notes were issued for net proceeds of approximately $345,520,000. The notes mature in October 2046 and were issued at a 3.90% coupon interest rate.

During the three months ended December 31, 2016, the Company repaid $250,000,000 principal amount of its 5.70% coupon unsecured notes in advance of the March 2017 scheduled maturity, recognizing a charge of $4,614,000, consisting of a prepayment penalty of $4,403,000 and the non-cash write-off of deferred financing costs of $211,000.

During 2016, the Company:

-- issued $1,125,000,000 aggregate principal amount of unsecured notes in public offerings under its existing shelf registration statement, for net proceeds of $1,114,388,000 at a weighted average contractual interest rate of 3.23%;

-- repaid $500,000,000 aggregate principal amount of unsecured notes with a weighted average contractual interest rate of 5.73%, recognizing a charge of $4,614,000 for a prepayment penalty and non-cash write-off of deferred financing costs;

-- repaid a $16,212,000 fixed rate secured mortgage note, at par, with an effective interest rate of 3.32% pursuant to its scheduled maturity date; and

-- repaid $134,500,000 of variable rate secured mortgage notes at par in advance of their March 2046 maturity date, recognizing a non-cash charge of $2,461,000 for the write-off of deferred financing costs.

First Quarter 2017 Dividend Declaration

The Company’s Board of Directors declared a dividend for the first quarter of 2017 of $1.42 per share on the Company’s common stock (par value of $0.01 per share). The declared dividend is a 5.2% increase over the Company’s prior quarterly dividend of $1.35 per share. The dividend is payable on April 17, 2017 to common stockholders of record as of March 31, 2017.

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 relationship of the current common dividend distribution to the Company’s Core FFO, the relationship of dividend distributions to taxable income, distribution requirements under rules governing real estate investment trusts, and expected growth in taxable income.

2017 Financial Outlook

The following presents a summary of the Company’s financial outlook for 2017, further details for which are provided in the full release

For its first quarter and full year 2017 financial outlook, the Company expects the following:

 
------------------------------------------------------------------------------------------------------------------------
                             Projected EPS, Projected FFO and Projected Core FFO Outlook (1)
------------------------------------------------------------------------------------------------------------------------
                                     Q1 2017               Full Year 2017
                                                  ------------------                     -------------------------------
                                                     Low      High                          Low            High
                                                  -------   -------                      -------   --------------------
                                                                                                    
Projected EPS                                       $1.75  -  $1.81                        $6.42  -        $6.82
Projected FFO per share                             $2.09  -  $2.15                        $8.59  -        $8.99
Projected Core FFO per share                        $2.06  -  $2.12                        $8.44  -        $8.84
 
(1) See Definitions and Reconciliations of this release for
reconciliations of Projected FFO per share and Projected Core FFO
per share to Projected EPS.
 
-----------------------------------------------------------------
 

The following table compares the 2017 full year outlook for EPS, FFO per share and Core FFO per share to the Company’s actual results for the full year 2016:

 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                      Full Year 2017 Outlook
                                                                                                                               Comparison to Full Year 2016 Results
                                                                                                                                                                               
                                                                                                                                                                                        Per Share
                                                                                      ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             EPS                                                   FFO                                                     Core FFO
                                                                                      -------------------------------------------------------------------- ----------------------------------------------------------------------------- ---------------------------------------------------------
                                                                                                                                                                                                                                          
2016 per share reported results                                                                          $  7.52                                                              $           8.26                                                              $           8.19
   Established and Redevelopment Community NOI                                                              0.22                                                                          0.22                                                                          0.22
   Other community NOI                                                                                      0.74                                                                          0.74                                                                          0.74
   Capital markets and transaction activity                                                                (0.33 )                                                                       (0.33 )                                                                       (0.42 )
   Joint venture income and management fees                                                                 0.08                                                                          0.08                                                                         (0.05 )
   Expensed acquisition costs, overhead and other                                                          (0.06 )                                                                       (0.06 )                                                                       (0.04 )
   Business interruption and property insurance proceeds, net of                                           (0.15 )                                                                       (0.12 )                                                              --
   impairment
   Gain on sale of real estate and depreciation expense                                 (1.40 )                        --       --  
                                                                                      -------------------- ----- -------------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------------- -------------- --------------------
2017 per share outlook (1)                                                                               $  6.62                        $           8.79                        $           8.64  
                                                                                      ==================== ===== ==================== ==================== ==================== ============== ==================== ==================== ==================== ============== ====================
 
(1) Represents the mid-point of the Company’s February 2017 outlook.
 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 

First Quarter Conference Schedule

Management is scheduled to present at Citi’s Global Property CEO Conference from March 5 - 8, 2017. 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 on the Company’s website at http://www.avalonbay.com /events">http://www.avalonbay.com /events .

Other Matters

The Company will hold a conference call on February 2, 2017 at 1:00 PM ET to review and answer questions about this release, its fourth quarter 2016 results, the Attachments (described below) and related matters. To participate on the call, dial 888-542-1101 domestically and 719-325-2201 internationally and use conference id: 8296894.

To hear a replay of the call, which will be available from February 2, 2017 at 6:00 PM ET to February 9, 2017 at 6:00 PM ET, dial 888-203-1112 domestically and 719-457-0820 internationally and use conference id: 8296894. A webcast of the conference call will also be available at http://www.avalonbay.com /earnings">http://www.avalonbay.com /earnings ,">http://www.avalonbay.com /earnings">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">http://www.avalonbay.com /earnings . To receive future press releases via e-mail, please submit a request through http://www.avalonbay.com /email">http://www.avalonbay.com /email .

In addition to the Attachments, the Company is providing a management letter and teleconference presentation that will be available on the Company’s website at http://www.avalonbay.com /earnings">http://www.avalonbay.com /earnings subsequent to this release and before the market opens on February 2, 2017. These supplemental materials will be available on the Company’s website for 30 days following the earnings call.

About AvalonBay Communities, Inc.

As of December 31, 2016, the Company owned or held a direct or indirect ownership interest in 285 apartment communities containing 83,667 apartment homes in 10 states and the District of Columbia, of which 27 communities were under development and four communities were under redevelopment. The Company is an equity REIT in the business of developing, redeveloping, acquiring and managing apartment communities in leading metropolitan areas in New England, the New York/New Jersey Metro area, the Mid-Atlantic, the Pacific Northwest, and the Northern and Southern California regions 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, Senior Director of Investor Relations at 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. These forward-looking statements, which you can identify 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, are based on the Company’s expectations, forecasts and assumptions at the time of this release, which may not be realized and involve risks and uncertainties that cannot be predicted accurately or that might not be anticipated. These could cause actual results to differ materially from those expressed or implied by the forward-looking statements. Risks and uncertainties that might cause such differences include the following, among others: we may abandon development or redevelopment opportunities for which we have already incurred costs; adverse capital and credit 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; expenses may result in communities that we develop or redevelop failing to achieve expected profitability; our assumptions concerning risks relating to our lack of control of joint ventures and our abilities to successfully dispose of certain assets may not be realized; our assumptions and expectations in our financial outlook may prove to be too optimistic; and the Company’s expectations and assumptions as of the date of this release regarding potential uninsured loss amounts and on-going investigations resulting from the casualty loss at Avalon at Edgewater ("Edgewater") are subject to change and could materially affect the Company’s current expectations regarding the impact of the fire. Additional discussions of risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the forward-looking statements 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, 2015 under the heading "Risk Factors" and under the heading "Management’s Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Statements" and in subsequent quarterly reports on Form 10-Q.

The Company does not undertake a duty to update forward-looking statements, including its expected 2017 operating results and other financial data forecasts contained in this release. 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 15, "Definitions and Reconciliations of Non-GAAP Financial Measures and Other Terms." Attachment 15 is included in the full earnings release available at the Company’s website at http://www.avalonbay.com /earnings">http://www.avalonbay.com /earnings . This wire distribution includes only definitions and reconciliations of the following non-GAAP financial measures:

Average Rental Rates are calculated by the Company as rental revenue in accordance with GAAP, divided by the weighted average number of occupied apartment homes.

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 based on their respective final settlement statements. A reconciliation of Economic Gain (Loss) to gain on sale in accordance with GAAP for the year ended December 31, 2016 as well as prior years’ activities is presented elsewhere in the full release.

Economic Occupancy ("Ec Occ") is defined as total possible revenue less vacancy loss as a percentage of total possible revenue. Total possible revenue (also known as "gross potential") 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.

Established Communities are consolidated 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, as defined below, as of the beginning of the respective prior year period. Therefore, for 2016 operating results, Established Communities are consolidated communities that have Stabilized Operations as of January 1, 2015, are not conducting or planning to conduct substantial redevelopment activities and are not held for sale or planned for disposition within the current year.

FFO and Core FFO are considered by management to be supplemental measures of our operating and financial performance. FFO is calculated by the Company in accordance with the 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, 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. 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 and financial performance of a company’s real estate between periods or as compared to different companies. Core FFO is the Company’s FFO as adjusted for non-core items outlined in the table below. By further adjusting for items that are not considered part of our core business operations, Core FFO can help one compare the core operating and financial performance of the Company between periods. A reconciliation of Net income attributable to common stockholders to FFO and to Core FFO is as follows (dollars in thousands):

 
 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     Q4                                                         Q4                                                      Full Year                                                  Full Year
                                                                                                                       2016                                                                          2015                                                                          2016                                                                          2015
                                                                                             ------------------------------------------------------                        ------------------------------------------------------                        ------------------------------------------------------                        ------------------------------------------------------
                                                                                                                                                                                                                                                                                                                                        
Net income attributable to common stockholders                                                                  $        242,235                                                              $        155,428                                                              $      1,034,002                                                              $        742,038
   Depreciation - real estate assets, including discontinued operations                                                  140,773                                                                       126,824                                                                       538,606                                                                       486,019
   and joint venture adjustments
   Distributions to noncontrolling interests, including discontinued                                                          10                                                                             9                                                                            41                                                                            38
   operations
   Gain on sale of unconsolidated entities holding previously                                                             (4,897 )                                                                      (2,633 )                                                                     (58,069 )                                                                     (33,580 )
   depreciated real estate
   Gain on sale of previously depreciated real estate                                                                    (90,041 )                                                                      (9,474 )                                                                    (374,623 )                                                                    (115,625 )
   Casualty and impairment (recovery) loss, net on real estate (1)(5)                          --                          --                                  (4,195 )                                                    4,195  
                                                                                             -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
FFO attributable to common stockholders                                                                                  288,080                                                                       270,154                                                                     1,135,762                                                                     1,083,085
                                                                                                                                                                                                                                                                                                                                        
Adjusting items:
   Joint venture losses (gains) (2)                                                                                          268                                                                          (388 )                                                                       6,031                                                                        (9,059 )
                                                                                                                  --                                                                --                                                                        10,500                                                                           800
   Impairment loss on real estate (3)(5)
   Casualty loss (gain), net on real estate (4)(5)                                                                --                                                                           125                                                                       (10,239 )                                                                     (15,538 )
   Business interruption insurance proceeds                                                                                 (143 )                                                                        (998 )                                                                     (20,565 )                                                                      (1,509 )
   Lost NOI from casualty losses covered by business interruption                                                          1,786                                                                         2,790                                                                         7,366                                                                         7,862
   insurance (6)
   Loss (gain) on extinguishment of consolidated debt                                                                      4,614                                                                --                                                                         7,075                                                                       (26,736 )
   Acquisition costs                                                                                                         959                                                                           352                                                                         3,523                                                                         3,806
   Severance related costs                                                                                                   (55 )                                                                         215                                                                           852                                                                         1,999
   Development pursuit and other write-offs                                                                                 (107 )                                                                         766                                                                         3,662                                                                         1,838
   Joint venture promote (7)                                                                                              (4,538 )                                                              --                                                                        (7,985 )                                                                     (21,969 )
   Loss (gain) on sale of other real estate                                                                                  697                                                                --                                                                       (10,224 )                                                                      (9,647 )
   Legal settlements                                                                                                        (417 )                                                              --                                                                          (417 )                                                              --
   Income taxes                                                                                --                                     106                          --                                   1,103  
                                                                                             -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------
Core FFO attributable to common stockholders                                                                    $        291,144                                           $        273,122                                           $      1,125,341                                           $      1,016,035  
                                                                                             ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================
                                                                                                                                                                                                                                                                                                                                        
Average shares outstanding - diluted                                                                                 137,519,045                                                                   137,349,671                                                                   137,461,637                                                                   134,593,177
                                                                                                                                                                                                                                                                                                                                        
Earnings per share - diluted                                                                                    $           1.76                                           $           1.13                                           $           7.52                                           $           5.51  
                                                                                             ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================
FFO per common share - diluted                                                                                  $           2.09                                           $           1.97                                           $           8.26                                           $           8.05  
                                                                                             ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================
Core FFO per common share - diluted                                                                             $           2.12                                           $           1.99                                           $           8.19                                           $           7.55  
                                                                                             ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================
                                                                                                                                                                                                                                                                                                                                        
(1) In 2015, the Company recognized an impairment on depreciable
real estate of $4,195 from the severe winter storms that occurred in
the Company’s Northeast markets. The Company received insurance
proceeds in 2016, net of additional costs incurred, of $5,732
related to the winter storms. $4,195 of this recovery is recognized
in full year 2016 as an offset to the loss incurred in the prior
year. The balance of the net insurance proceeds received in 2016 of
$1,537 is recognized as a casualty gain in full year 2016 and is
included in the reconciliation of FFO to Core FFO.
 
(2) Amount for full year 2016 is primarily composed of the Company’s
portion of yield maintenance charges incurred for the early
repayment of debt associated with joint venture disposition activity
and the write-off of asset management fee intangibles primarily
associated with the disposition of communities in the U.S. Fund.
Amount for full year 2015 is primarily composed of the Company’s
proportionate share of gains and operating results for joint
ventures formed with Equity Residential as part of the Archstone
acquisition.
 
(3) Amounts include impairment charges relating to ancillary land
parcels.
 
(4) Amount for full year 2016 includes $8,702 in property damage
insurance proceeds for the Edgewater casualty loss, and $1,537 in
property damage insurance proceeds in excess of the total recognized
loss related to severe winter storms in the Company’s Northeast
markets that occurred in 2015. Amount for Q4 2015 consists of
demolition and additional incident expenses for the Edgewater
casualty loss and amount for full year 2015 includes $44,142 of
Edgewater insurance proceeds received partially offset by $28,604
for the write-off of real estate and related costs.
 
(5) Aggregate impact of (i) Casualty and impairment (recovery) loss,
net on real estate, (ii) Impairment loss on real estate and (iii)
Casualty loss (gain), net on real estate for full year 2016, is a
gain of $3,935.
 
(6) Amounts relate to a casualty event at Edgewater in Q1 2015, for
which the Company received $20,306 in business interruption
insurance proceeds in Q1 2016.
 
(7) Amounts for Q4 and full year 2016 are composed of the Company’s
recognition of its promoted interest in Fund II. Amount for full
year 2015 is primarily composed of a joint venture partner’s buyout
of the Company’s promoted interest in future distributions of MVP I,
LLC.
 
------------------------------------------------------------------------------------------
 

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 $300 - $500 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 and amortization. For this purpose, management’s projection of operating expenses for the community includes a management fee of 2.5% - 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.

Interest Coverage is calculated by the Company as Core EBITDA divided by the sum of interest expense, net, and preferred dividends, if applicable. 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 Core EBITDA and a calculation of Interest Coverage for the three months ended December 31, 2016 are as follows (dollars in thousands):

 
 
--------------------------------------------------------------------------------------------------------------------------------------------
                                                                    
Net income attributable to common stockholders                                                             $   242,235
Interest expense, net inclusive of loss on extinguishment of debt,                                              54,262
net
Income tax expense                                                                                                 210
Depreciation expense                                                                        140,020  
                                                                                        -------------------- --------- --------------------
EBITDA                                                                                                     $   436,727  
                                                                                        ==================== ========= ====================
                                                                                         
NOI from real estate assets sold or held for sale                                                                 (167 )
Gain on sale of communities                                                                                    (90,041 )
Loss on sale of other real estate                                                                                  697
Joint venture income                                                                        (10,184 )
                                                                                        -------------------- --------- --------------------
Consolidated EBITDA after disposition activity                                                             $   337,032  
                                                                                        ==================== ========= ====================
                                                                                         
Lost NOI from casualty losses                                                                                    1,786
Business interruption insurance proceeds                                                                          (143 )
Acquisition costs                                                                                                  959
Severance related costs                                                                                            (55 )
Development pursuit and other write-offs                                                                          (107 )
Legal settlements                                                                              (417 )
                                                                                        -------------------- --------- --------------------
Core EBITDA                                                                                                $   339,055  
                                                                                        ==================== ========= ====================
                                                                                         
                                                                                        ----------------------------------------------------
Interest expense, net                                                                                      $    49,648  
                                                                                        ==================== ========= ====================
                                                                                         
Interest Coverage                                                                         6.8 times  
                                                                                        ==================== ========= ====================
 
--------------------------------------------------------------------------------------------------------------------------------------------
 

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" above. A calculation of Net Debt-to-Core EBITDA is as follows (dollars in thousands):

 
 
--------------------------------------------------------------------------------------------------
                          
Total debt principal (1)                                         $ 7,076,758
Cash and cash in escrow                          (329,977 )
                                              -------------------- --------- --------------------
Net debt                                                         $ 6,746,781  
                                              ==================== ========= ====================
                                               
Core EBITDA                                                      $   339,055
                                               
Core EBITDA, annualized                                          $ 1,356,220
                                               
Net Debt-to-Core EBITDA                         5.0 times  
                                              ==================== ========= ====================
 
(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.
 
------------------------------------------------------------------
 

NOI is defined by the Company as total property revenue less direct property operating expenses (including property taxes), and excluding corporate-level income (including management, development and other fees), corporate-level property management and other indirect operating expenses, investments and investment management expenses, expensed acquisition, development and other pursuit costs, net of recoveries, interest expense, net, loss (gain) on extinguishment of debt, net, general and administrative expense, joint venture income, depreciation expense, corporate income tax expense, casualty and impairment loss (gain), net, gain on sale of real estate and net operating income from real estate assets sold or held for sale. The Company considers NOI to be an important and appropriate supplemental performance 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 any corporate-level property management overhead or financing-related costs. NOI reflects the operating performance of a community, and allows for an easier comparison of the operating performance of individual assets or groups of assets. In addition, because prospective buyers of real estate have different financing and overhead structures, with varying marginal impact to overhead as a result of 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 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
                                                                                                                 2016                                                                          2015                                                                          2016                                                                       2016                                                                      2016                                                                        2016                                                                     2015
                                                                                       ------------------------------------------------------                        ------------------------------------------------------                        ------------------------------------------------------                        -----------------------------------------------                        ------------------------------------------------------                        -------------------------------------------------                        -------------------------------------------------
Net income                                                                                                $        242,183                                                              $        155,352                                                              $        356,329                                                              $ 197,319                                                              $        237,877                                                              $ 1,033,708                                                              $   741,733
Indirect operating expenses, net of corporate income                                                                14,443                                                                        13,332                                                                        14,946                                                                 15,477                                                                        16,537                                                                   61,403                                                                   56,973
Investments and investment management expense                                                                        1,277                                                                         1,096                                                                         1,205                                                                  1,194                                                                         1,145                                                                    4,822                                                                    4,370
Expensed acquisition, development and other pursuit costs, net of                                                    1,220                                                                         1,570                                                                         3,804                                                                  1,436                                                                         3,462                                                                    9,922                                                                    6,822
recoveries
Interest expense, net                                                                                               49,648                                                                        42,217                                                                        47,871                                                                 46,581                                                                        43,410                                                                  187,510                                                                  175,615
Loss (gain) on extinguishment of debt, net                                                                           4,614                                                                --                                                                --                                                                  2,461                                                                --                                                                    7,075                                                                  (26,736 )
General and administrative expense                                                                                  10,428                                                                        11,508                                                                        11,928                                                                 12,011                                                                        11,404                                                                   45,771                                                                   42,774
Joint venture income                                                                                               (10,184 )                                                                      (1,093 )                                                                         342                                                                (27,151 )                                                                     (27,969 )                                                                (64,962 )                                                                (70,018 )
Depreciation expense                                                                                               140,020                                                                       122,259                                                                       131,729                                                                132,469                                                                       127,216                                                                  531,434                                                                  477,923
Income tax expense                                                                                                     210                                                                           135                                                                            22                                                                     36                                                                            37                                                                      305                                                                    1,483
Casualty and impairment loss (gain), net                                                                    --                                                                           125                                                                --                                                                 (1,732 )                                                                      (2,202 )                                                                 (3,935 )                                                                (10,542 )
Gain on sale of real estate                                                                                        (89,344 )                                                                      (9,474 )                                                                    (212,941 )                                                              (31,133 )                                                                     (51,430 )                                                               (384,847 )                                                               (125,272 )
NOI from real estate assets sold or held for sale (1)                                              (167 )                                                   (8,036 )                                                   (4,690 )                                            (5,924 )                                                   (6,727 )                                             (17,509 )                                             (34,133 )
                                                                                       -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- ------- --------------------                      -------------------- -------------- --------------------                      -------------------- --------- --------------------                      -------------------- --------- --------------------
NOI                                                                                                       $        364,348                                           $        328,991                                           $        350,545                                           $ 343,044                                           $        352,760                                           $ 1,410,697                                           $ 1,240,992  
                                                                                       ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================                      ==================== ======= ====================                      ==================== ============== ====================                      ==================== ========= ====================                      ==================== ========= ====================
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
Established:
   New England                                                                                            $         39,762                                                              $         39,090                                                              $         38,492                                                              $  37,977                                                              $         37,438                                                              $   153,669                                                              $   146,494
   Metro NY/NJ                                                                                                      65,949                                                                        66,051                                                                        65,299                                                                 64,970                                                                        62,732                                                                  258,950                                                                  255,335
   Mid-Atlantic                                                                                                     41,621                                                                        41,210                                                                        40,029                                                                 40,530                                                                        40,063                                                                  162,243                                                                  160,159
   Pacific NW                                                                                                       14,741                                                                        13,903                                                                        14,502                                                                 14,173                                                                        14,078                                                                   57,494                                                                   53,995
   No. California                                                                                                   61,800                                                                        59,354                                                                        61,560                                                                 60,850                                                                        60,248                                                                  244,458                                                                  228,502
   So. California                                                                                52,294                                  49,572                                  52,527                           51,301                                  51,415                            207,537                            190,260  
                                                                                       -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- ------- --------------------                      -------------------- -------------- --------------------                      -------------------- --------- --------------------                      -------------------- --------- --------------------
      Total Established                                                                         276,167                                 269,180                                 272,409                          269,801                                 265,974                          1,084,351                          1,034,745  
                                                                                       -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- ------- --------------------                      -------------------- -------------- --------------------                      -------------------- --------- --------------------                      -------------------- --------- --------------------
Other Stabilized (2)                                                                                                40,513                                                                        30,042                                                                        34,812                                                                 35,091                                                                        55,114                                                                  165,530                                                                  106,508
Development/Redevelopment                                                                        47,668                                  29,769                                  43,324                           38,152                                  31,672                            160,816                             99,739  
                                                                                       -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- -------------- --------------------                      -------------------- ------- --------------------                      -------------------- -------------- --------------------                      -------------------- --------- --------------------                      -------------------- --------- --------------------
NOI                                                                                                       $        364,348                                           $        328,991                                           $        350,545                                           $ 343,044                                           $        352,760                                           $ 1,410,697                                           $ 1,240,992  
                                                                                       ==================== ============== ====================                      ==================== ============== ====================                      ==================== ============== ====================                      ==================== ======= ====================                      ==================== ============== ====================                      ==================== ========= ====================                      ==================== ========= ====================
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
(1) Represents NOI from real estate assets sold or held for sale
that are not otherwise classified as discontinued operations.
 
(2) NOI for Q1 2016 and Full Year 2016 Other Stabilized Communities
includes $20,306 of business interruption insurance proceeds related
to the Edgewater casualty loss.
 
--------------------------------------------------------------------
 

NOI as reported by the Company does not include the operating results from assets sold or classified as held for sale (i.e., assets sold or classified as held for sale at December 31, 2016 that are not otherwise classified as discontinued operations). A reconciliation of NOI from communities sold or classified as held for sale is as follows (dollars in thousands):

                                                                                                                                                                                                                                                                
                                                                                                                                                                                                                            
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------- --------------------------------------------------
                                                                                         Q4                                                Q4                                                                  Full Year                                                              Full Year
                                                                                                           2016                                                                 2015                                                                   2016                                                                   2015
                                                                                      --------------------------------------------                        ----------------------------------------------                        -----------------------------------------------                        -----------------------------------------------
                                                                                                                                                                                                                                                                                                        
Revenue from real estate assets sold or held for sale                                                    $  381                                                              $ 12,583                                                              $  28,430                                                              $  55,674
Operating expenses from real estate assets sold or held for sale                        (214 )                                           (4,547 )                                           (10,921 )                                           (21,541 )
                                                                                      -------------------- ---- --------------------                      -------------------- ------ --------------------                      -------------------- ------- --------------------                      -------------------- ------- --------------------
   NOI from real estate assets sold or held for sale                                                     $  167                                           $  8,036                                           $  17,509                                           $  34,133  
                                                                                      ==================== ==== ====================                      ==================== ====== ====================                      ==================== ======= ====================                      ==================== ======= ====================
 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 

Other Stabilized Communities are completed consolidated communities that the Company owns, which have Stabilized Operations as of January 1, 2016. Other Stabilized Communities do not include communities that are conducting or planning to conduct substantial redevelopment activities.

Projected FFO and Projected Core FFO, as provided within this release in the Company’s outlook, are calculated on a basis consistent with historical FFO and Core FFO, and are therefore considered to be appropriate supplemental measures to projected Net Income from projected operating performance. A reconciliation of the ranges provided for Projected FFO per share (diluted) for the first quarter and full year 2017 to the ranges provided for projected EPS (diluted) and corresponding reconciliation of the ranges for Projected FFO per share to the ranges for Projected Core FFO per share are as follows:

 
 
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               Low                                              High
                                                                                                                 Range                                                                Range
                                                                                           ---------------------------------------------                        ----------------------------------------------
                                                                                                                                                                 
Projected EPS (diluted) - Q1 2017                                                                             $  1.75                                                              $   1.81
   Depreciation (real estate related)                                                                            1.01                                                                  1.05
   Gain on sale of communities                                                               (0.67 )                                            (0.71 )
                                                                                           -------------------- ----- --------------------                      -------------------- ------ --------------------
Projected FFO per share (diluted) - Q1 2017                                                   2.09                            2.15  
                                                                                           -------------------- ----- --------------------                      -------------------- ------ --------------------
                                                                                                                                                                 
   Joint venture income, development pursuit and other write-offs and                                           (0.04 )                                                               (0.04 )
   severance related costs
   Lost NOI from casualty losses covered by business interruption                             0.01                            0.01  
   insurance
                                                                                           -------------------- ----- --------------------                      -------------------- ------ --------------------
Projected Core FFO per share (diluted) - Q1 2017                                                              $  2.06                                           $   2.12  
                                                                                           ==================== ===== ====================                      ==================== ====== ====================
                                                                                                                                                                 
Projected EPS (diluted) - Full Year 2017                                                                      $  6.42                                                              $   6.82
   Depreciation (real estate related)                                                                            4.09                                                                  4.29
   Gain on sale of communities                                                               (1.92 )                                            (2.12 )
                                                                                           -------------------- ----- --------------------                      -------------------- ------ --------------------
Projected FFO per share (diluted) - Full Year 2017                                            8.59                            8.99  
                                                                                           -------------------- ----- --------------------                      -------------------- ------ --------------------
                                                                                                                                                                 
   Joint venture income, development pursuit and other write-offs and                                           (0.14 )                                                               (0.14 )
   severance related costs
   Lost NOI from casualty losses covered by business interruption                                                0.03                                                                  0.03
   insurance
   Gain on extinguishment of consolidated debt                                               (0.04 )                                            (0.04 )
                                                                                           -------------------- ----- --------------------                      -------------------- ------ --------------------
Projected Core FFO per share (diluted) - Full Year 2017                                                       $  8.44                                           $   8.84  
                                                                                           ==================== ===== ====================                      ==================== ====== ====================
 
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 

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. In addition, projected stabilized operating expenses for development communities do not include property management fee expense. 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 will achieve the Projected NOI as described in this release.

Projected Stabilized Yield (also expressed as "weighted average initial stabilized yield" or words of similar meaning) means Projected NOI as a percentage of Total Capital Cost.

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
                                                                                            2016                                                                   2015                                                                    2016                                                                     2015
                                                                     -----------------------------------------------                        -----------------------------------------------                        -------------------------------------------------                        -------------------------------------------------
                                                                                                                                                                                                                                                                                             
Rental revenue (GAAP basis)                                                             $ 389,367                                                              $ 376,785                                                              $ 1,541,034                                                              $ 1,476,828
Concessions amortized                                                                         415                                                                    264                                                                    1,139                                                                    2,530
Concessions granted                                                       (810 )                                              (280 )                                              (1,776 )                                                (958 )
                                                                     -------------------- ------- --------------------                      -------------------- ------- --------------------                      -------------------- --------- --------------------                      -------------------- --------- --------------------
                                                                                                                                                                                                                                                                                             
Rental Revenue with Concessions on a Cash Basis                                         $ 388,972                                           $ 376,769                                           $ 1,540,397                                           $ 1,478,400  
                                                                     ==================== ======= ====================                      ==================== ======= ====================                      ==================== ========= ====================                      ==================== ========= ====================
                                                                                                                                                                                                                                                                                             
% change -- GAAP revenue                                                                                                                                             3.3 %                                                                                                                                             4.3 %
                                                                                                                                                                                                                                                                                             
% change -- cash revenue                                                                                                                                             3.2 %                                                                                                                                             4.2 %
 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 

Stabilized Operations/Restabilized Operations is defined as the earlier of (i) attainment of 95% physical occupancy or (ii) the one-year anniversary of completion of development or redevelopment.

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, offset by proceeds from the sale of any associated land or improvements, 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.

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 (dollars in thousands):

 
 
---------------------------------------------------------------------------------------------------------------------------
                                                                       Full Year 2016
                                                                                                NOI
                                                                       -------------------------------------------------
NOI for Established Communities                                                           $ 1,084,351
NOI for Other Stabilized Communities (1)                                                      165,530
NOI for Development/Redevelopment Communities                                                 160,816
NOI from real estate assets sold or held for sale                           17,509  
                                                                       -------------------- --------- --------------------
   Total NOI generated by real estate assets                                                1,428,206
NOI on encumbered assets                                                   281,142  
                                                                       -------------------- --------- --------------------
   NOI on unencumbered assets                                                             $ 1,147,064  
                                                                       -------------------- --------- --------------------
                                                                        
Unencumbered NOI                                                                80 %
                                                                       ==================== ========= ====================
 
(1) NOI for Other Stabilized Communities includes $20,306 of
business interruption insurance proceeds related to the Edgewater
casualty loss.
 
-----------------------------------------------------------------
 

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) is 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 investment period for each respective community, including net sales proceeds.

Copyright (C) 2017 AvalonBay Communities, Inc. All Rights Reserved

http://cts.businesswire.com/ct/CT?id=bwnews&sty=20170201006306r1&sid=cmtx6&distro=nx&lang=en

View source version on businesswire.com: http://www.businesswire.com/news/home/20170201006306/en/

SOURCE: AvalonBay Communities, Inc.

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


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