INVESTOR TELECONFERENCE PRESENTATION - Third Quarter 2018 October 29, 2018 - AvalonBay
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AVALON GREAT NECK
Great Neck, NY
AVA NOMA
INVESTOR TELECONFERENCE
PRESENTATION
Washington, DC
Third Quarter 2018
October 29, 2018
1
EAVES RANCHO PENASQUITOS
San Diego, CA
See Appendix for information about
forward-looking statements and definitions
of non-GAAP financial measures and other terms.
2
PARTICIPANTS
TIM NAUGHTON CHAIRMAN & CHIEF EXECUTIVE OFFICER
KEVIN O’SHEA CHIEF FINANCIAL OFFICER
MATT BIRENBAUM CHIEF INVESTMENT OFFICER
SEAN BRESLIN CHIEF OPERATING OFFICER
3
REVIEW OF THIRD QUARTER AND YEAR-TO-DATE RESULTS
Q3 & YTD 2018 RESULTS Q3 YTD
CORE FFO PER SHARE GROWTH 4.1% 5.0%
SAME-STORE RENTAL REVENUE GROWTH | INCLUDING REDEVELOPMENT 2.3% | 2.3% 2.4% | 2.4%
DEVELOPMENT COMPLETIONS | WTD. AVG. INITIAL PROJECTED STABILIZED YIELD(1) $ 315M | 6.2% $ 740M | 6.4%
DEVELOPMENT STARTS $ 205M $ 470M
CAPITAL RAISED | WTD. AVG. INITIAL COST OF CAPITAL(2) $ 170M | ≈ 4.4% $ 770M | ≈ 4.4%
Source: Company reports.
See Appendix for a reconciliation of Net Income attributable to common stockholders to FFO and to Core FFO.
(1) AVA North Point (an unconsolidated joint venture community) is excluded from the weighted average initial projected stabilized yields presented.
(2) Capital raised includes net proceeds from all wholly-owned dispositions, debt issuances and distributions from unconsolidated real estate entities.
Weighted average initial cost of capital includes all wholly-owned dispositions and debt issuances (inclusive of the effect of interest rate hedges) only.
4
THE U.S. ECONOMY IS HEALTHY…
1 GDP GROWTH BENEFITTING FROM 2 CORPORATE PROFITS UP ≈ 15%
FISCAL STIMULUS & A HEALTHY CONSUMER IN EACH OF THE FIRST TWO QUARTERS OF 2018
U.S. REAL GDP U.S. CORPORATE PROFITS AFTER TAX
SEASONALLY ADJUSTED
YEAR-OVER-YEAR CHANGE
SEASONALLY ADJUSTED
6% 30%
ANNUALIZED RATE
3% 15%
- -
(3%) (15%)
2011 2012 2013 2014 2015 2016 2017 2018 2011 2012 2013 2014 2015 2016 2017 2018
3 THE UNEMPLOYMENT RATE IS AT A CYCLICAL LOW; 4 INCREASING HOME VALUES AND STOCK PRICES DRIVING
JOB OPENINGS ARE AT A TIME SERIES HIGH HOUSEHOLD NET WORTH TO RECORD LEVELS
U.S. UNEMPLOYMENT RATE & U.S. JOB OPENINGS ≈ 7M U.S. HOUSEHOLD NET WORTH
SEASONALLY ADJUSTED
JOB OPENINGS
12% 9 120
$ TRILLIONS
8% 6 MILLIONS 80
4% 3 40
- - -
2011 2012 2013 2014 2015 2016 2017 2018 1980 1985 1990 1995 2000 2005 2010 2015
U.S. UNEMPLOYMENT RATE JOB OPENINGS (RIGHT AXIS)
Source: U.S. Bureau of Economic Analysis, Federal Reserve Bank of St. Louis, U.S. Bureau of Labor Statistics, U.S. Board of Governors of the Federal Reserve System.
5
…AND MANY LEADING INDICATORS ARE STILL POINTING UP
1 BUSINESS CONFIDENCE IS ELEVATED… 2 …AND EQUIPMENT INVESTMENT IS UP
SURVEY OF U.S. BUSINESS CONFIDENCE U.S. PRIVATE FIXED INVESTMENT
YEAR-OVER-YEAR CHANGE
SEASONALLY ADJUSTED
48 20%
DIFFUSION INDEX
32 10%
16 -
- (10%)
2011 2012 2013 2014 2015 2016 2017 2018 2011 2012 2013 2014 2015 2016 2017 2018
NON-RESIDENTIAL EQUIPMENT INTELLECTUAL PROPERTY PRODUCTS
3 CONSUMER CONFIDENCE IS AT AN 18 YEAR HIGH… 4 …WHICH IS SUPPORTING AN UPTICK IN
U.S. CONSUMER CONFIDENCE HOUSEHOLD FORMATION & STRONGER RETAIL SALES
U.S. HOUSEHOLD FORMATION & U.S. RETAIL SALES
YEAR-OVER-YEAR CHANGE
SEASONALLY ADJUSTED
INDEXED TO 100 IN 1985
150 3 9%
SEASONALLY ADJUSTED
YEAR-OVER-YEAR CHANGE
100 2 6%
MILLIONS
50 1 3%
- - -
2011 2012 2013 2014 2015 2016 2017 2018 2011 2012 2013 2014 2015 2016 2017 2018
HOUSEHOLD FORMATION RETAIL SALES (RIGHT AXIS)
Source: Moody’s Analytics, U.S. Bureau of Economic Analysis, The Conference Board, U.S. Census Bureau.
6
APARTMENT DEMAND DRIVERS ARE FAVORABLE
1 JOB GROWTH IS HEALTHY, 2 WAGE GROWTH INDICATORS
ESPECIALLY AMONG YOUNG ADULTS CONTINUE TO IMPROVE
U.S. EMPLOYMENT U.S. AVERAGE HOURLY EARNINGS & U.S. WAGE GROWTH TRACKER
YEAR-OVER-YEAR CHANGE
YEAR-OVER-YEAR CHANGE
4%
SEASONALLY ADJUSTED
SEASONALLY ADJUSTED
4.5%
2% 3.0%
- 1.5%
HIT A 9 YEAR
HIGH IN AUGUST
(2%) -
2011 2012 2013 2014 2015 2016 2017 2018 2011 2012 2013 2014 2015 2016 2017 2018
U.S. 25 TO 34 YR OLDS AVERAGE HOURLY EARNINGS WAGE GROWTH TRACKER
3 HIGHER INTEREST RATES BEGINNING TO IMPACT THE 4 THE PRIME RENTER COHORT WILL INCREASE BY ≈ 1.5
AFFORDABILITY OF SINGLE FAMILY HOMES MILLION INDIVIDUALS OVER THE NEXT FIVE YEARS
U.S. COMPOSITE HOUSING AFFORDABILITY INDEX PROJECTED 25 – 34 YEAR OLDS IN THE U.S. IN DECEMBER OF EACH YEAR
& U.S. MORTGAGE APPLICATION FOR PURCHASE ACTIVITY INDEX
200 260 48
INDEXED TO 100
IN MARCH 1990
47.6
MILLIONS
47
150 210 + 1.6M
46
46.0
100 160 45
2011 2012 2013 2014 2015 2016 2017 2018 2018 2019 2020 2021 2022 2023
COMPOSITE HOUSING AFFORDABILITY INDEX
MORTGAGE APPLICATION FOR PURCHASE ACTIVITY INDEX (RIGHT AXIS)
Source: U.S. Bureau of Labor Statistics, Federal Reserve Bank of Atlanta (“Wage growth tracker”), National Association of Realtors, Mortgage Bankers Association, U.S. Census Bureau.
7
RISING CONSTRUCTION COSTS BEGINNING TO PRESSURE PERMITS
AND STARTS IN AVB MARKETS
1 CONSTRUCTION COST GROWTH OUTPACING RENT 2 …WHICH IS BEGINNING TO PUT DOWNWARD
GROWTH FOR THE PAST TWO YEARS… PRESSURE ON PERMITS & STARTS
AVB MARKETS ONLY AVB MARKETS ONLY
12% 300
YEAR-OVER-YEAR CHANGE
SEASONALLY ADJUSTED
ANNUALIZED RATE
8% 200
THOUSANDS
4% 100
- -
2011 2012 2013 2014 2015 2016 2017 2018 2011 2012 2013 2014 2015 2016 2017 2018
AVB CONSTRUCTION COST INDEX; PERMITS STARTS
12 MONTH MOVING AVERAGE
AXIOMETRICS EFFECTIVE RENT GROWTH ACTUAL | PROJECTED
NEW MARKET RATE APARTMENT DELIVERIES
AVB MARKETS ONLY
2017 2018 2019
TOTAL ≈ 90K ≈ 90K ≈ 95K
Source: AVB Market Research Group, Axiometrics, U.S. Census Bureau. AS A % OF EXISTING STOCK 2.1% 2.1% 2.2%
AVB markets exclude Southeast Florida and Denver.
8
IMPROVING APARTMENT FUNDAMENTALS SUPPORTING A MODEST
REACCELERATION IN RENT CHANGE ACROSS THE PORTFOLIO…
AVB QUARTERLY SAME-STORE
LIKE-TERM EFFECTIVE RENT CHANGE AVB SAME-STORE LIKE-TERM
TRAILING FOUR QUARTER AVERAGE EFFECTIVE RENT CHANGE
YEAR-OVER-YEAR CHANGE
10% 4%
2% 3.2%
2.5%
8% -
Q1 Q2 Q3
2017 2018
6%
4%
2%
-
2011 2012 2013 2014 2015 2016 2017 2018
PORTFOLIO EAST COAST WEST COAST
Source: Company reports.
9
…WITH MOST REGIONS PARTICIPATING IN THE REBOUND
AVB SAME-STORE
LIKE-TERM EFFECTIVE RENT CHANGE
Q3 2017 VERSUS Q3 2018
BY REGION
6%
5.2%
4%
4.0% 4.0%
3.8%
3.4%
3.2% 3.2%
2.9%
2.5% 2.5%
2% 2.3%
2.1%
1.6% 1.5%
-
SAME-STORE NEW ENGLAND METRO NY/NJ MID-ATLANTIC PACIFIC NORTHERN SOUTHERN
NORTHWEST CALIFORNIA CALIFORNIA
Q3 2017 Q3 2018
Source: Company reports.
102018 DEVELOPMENT ADDING SIGNIFICANT VALUE AND
PERFORMING AS EXPECTED
$ 630M OF YTD PROJECTED AVB DEVELOPMENT NOI
CURRENT ORIGINAL FULL YEAR 2018
DEVELOPMENT VARIANCE
PROJECTION PROJECTION
COMPLETIONS(1)
60
WEIGHTED AVERAGE
6.4% 6.3% + 10 BPS
INITIAL STABILZED YIELD
$ 52M $ 52M
WEIGHTED AVERAGE
4.5%
MARKET CAP RATE(2)
40
$ MILLIONS
20
-
CURRENT PROJECTION ORIGINAL PROJECTION(3)
AVALON DOGPATCH
Source: Company reports.
SAN FRANCISCO, CA
(1) AVA North Point (an unconsolidated joint venture community) is excluded from the weighted average initial stabilized yield and Market Cap Rate calculations.
(2) Represents Management’s estimate of the weighted average Market Cap Rate for these assets (weighting is based on Total Capital Cost).
(3) As provided on January 31, 2018.
11STRONG TRACK RECORD OF COMPLETING DEVELOPMENT ON
BUDGET, BUT PRESSURES BUILDING IN NORTHERN CALIFORNIA
AVB DEVELOPMENT COMPLETION SAVINGS & OVERRUNS
VERSUS ORIGINAL PROJECTED TOTAL CAPITAL COST
BY YEAR
10%
SAVINGS
5%
-
OVERRUNS
(5%)
PRIMARILY DRIVEN BY TWO
COMMUNITIES LOCATED IN
NORTHERN CALIFORNIA
(10%)
2000 - 2010 2011 2012 2013 2014 2015 2016 2017 YTD 2018 CURRENT
TOTAL DEVELOPMENT
ACTIVITY
Source: Company reports.
12DURABLE PLATFORM FOR CREATING VALUE VIA DEVELOPMENT
1 REALIZED & ESTIMATED UNREALIZED AVB UNLEVERED 2 CURRENT CYCLE AVB DEVELOPMENT
DEVELOPMENT INTERNAL RATES OF RETURN COMPLETIONS & ESTIMATED VALUE CREATION
BY COMPLETION PERIOD 2011 – YTD 2018 TOTAL CAPITAL COST ≈ $ 6.9B
AVERAGE HOLD PERIOD = 9.7 YEARS 2011 – YTD 2018 ESTIMATED VALUE CREATION ≈ $ 3.0B
15% 3
14.6%
$ BILLIONS
12.8% 0.7B
10% 11.0%
2
9.9% 0.7B
8.3% 0.5B 0.3B
5% 1 0.3B
0.2B 0.2B 1.9B
0.1B 1.1B 1.3B
0.5B 0.6B 0.5B 0.7B
- - 0.3B
1995 - 2001 2002 - 2004 2005 - 2008 2009 - 2011 2012 - Q2 2016 2011 2012 2013 2014 2015 2016 2017 YTD 2018
EXPANSION RECESSION / EXPANSION RECESSION / EXPANSION
EARLY EARLY
TOTAL CAPITAL COST ESTIMATED VALUE CREATION
RECOVERY RECOVERY
3 CURRENT AVB DEVELOPMENT 4 CURRENT AVB DEVELOPMENT
& ESTIMATED VALUE CREATION & AVAILABLE CAPITAL SOURCES
PROJECTED TOTAL CAPITAL COST ≈ $ 2.8B INCLUDES NON-STABILIZED DEVELOPMENT COMPLETIONS
ESTIMATED VALUE CREATION ≈ $ 0.8B ≈ 80% MATCH-FUNDED AT THE END OF Q3 2018
4.5 3.6
0.7B
$ BILLIONS
$ BILLIONS
3.0 0.8B 0.8B 2.4 0.4B
0.2B
3.4B
1.5 2.8B 2.8B 1.2 2.1B
- -
PROJECTED TOTAL ESTIMATED VALUE TOTAL VALUE PROJECTED TOTAL CAPITAL COST SOURCES
CAPITAL COST CREATION (AT SHARE)
SPENT-TO-DATE ANNUALIZED Q3 2018 CASH FROM
OPERATIONS AVAILABLE FOR INVESTMENT
ASSETS UNDER CONTRACT OR IN ADVANCED
STAGES OF MARKETING FOR SALE(1) REMAINING TO FUND
Source: Company reports.
(1) Excludes projected net proceeds from the New York City joint venture.
13ACCESSING TRANSACTION MARKET AS PRIMARY CAPITAL SOURCE
DISPOSITIONS ACQUISITIONS
WHOLLY-OWNED ONLY
PROJECTED FULL YEAR 2018
MILLIONS
GROSS SALES PROCEEDS NET OF ACQUISITIONS
NEW YORK CITY JOINT VENTURE AT SHARE (80%)
≈ $ 610
5 COMMUNITIES | $760M AGGREGATE GROSS VALUATION
AVALON ARUNDEL CROSSING THE ALEXANDER APARTMENTS & LOFTS
WHOLLY-OWNED DISPOSITIONS LINTHICUM HEIGHTS, MD WEST PALM BEACH, FL
620
8 COMMUNITIES | ≈ 4.5% WTD. AVG. MARKET CAP RATE 310 APARTMENT HOMES 290 APARTMENT HOMES
TOTAL WHOLLY-OWNED JOINT VENTURE
$ 1,230
AND DISPOSITION ACTIVITY
LESS: ACQUISITIONS
(335)
4 COMMUNITIES | ≈ 4.7% WTD. AVG. MARKET CAP RATE
TOTAL $ 895
IRONWOOD AT RED ROCKS THE MEADOWS LUXURY APARTMENTS
LITTLETON, CO CASTLE ROCK, CO
256 APARTMENT HOMES 240 APARTMENT HOMES
Source: Company reports.
Includes actual 2018 activity through Q3 and projected Q4 activity.
14RECENTLY ANNOUNCED NEW YORK CITY JOINT VENTURE REDUCES
MANHATTAN ALLOCATION, BALANCES REGIONAL PORTFOLIO…
TRANSACTION DETAILS
AGGREGATE ASSET VALUATION ≈ $ 760M
INTEREST SOLD | GROSS PROCEEDS 80% | ≈ $610M
NUMBER OF APARTMENT HOMES 1,301
RETAIL SQUARE FOOTAGE ≈ 58,000
AVALON MORNINGSIDE PARK AVA HIGH LINE
% OF CONSOLIDATED NOI
Q3 2018 PROJECTED Q4 2018(1)
POST CLOSE
NEW YORK CITY, NEW YORK CITY,
42% 35%
NEW JERSEY, NEW YORK
NEW JERSEY, NEW YORK
33% SUBURBAN,
29% SUBURBAN,
32%
29%
AVALON WEST CHELSEA AVALON BOWERY PLACE I & II
Source: Company reports.
(1) Projection is based on Q3 2018 % of Consolidated NOI excluding the five communities included in the New York City joint venture.
15…AND BRINGS US CLOSER TO ACHIEVING OUR LONG-TERM
PORTFOLIO ALLOCATION GOALS
6% % OF CONSOLIDATED NOI
PACIFIC
NORTHWEST 7%
Q3 2018
AS REPORTED
24%
NEW
14% ENGLAND
22%
20% 12%
NORTHERN 20%
CALIFORNIA 16% DENVER
16%
< 1% METRO NY/NJ
15%
5% MID-ATLANTIC
20%
20%
SOUTHERN
CALIFORNIA
PROJECTED % OF NOI, PORTFOLIO AS OF Q4 2018(1) < 1%
SOUTHEAST
% OF NOI, FUTURE TARGET ALLOCATION (I.E., 10 YEARS) 5%
FLORIDA
Source: Company reports.
(1) Projection is based on Q3 2018 % of Consolidated NOI excluding the five communities included in the New York City joint venture.
16RETAIL LEASING AT 15 WEST 61ST STREET PROGRESSING WELL
STATUS OF RETAIL RENTABLE
SQUARE FOOTAGE BY FLOOR ≈ 65% OF TOTAL RETAIL RENTABLE
SQUARE FOOTAGE LEASED OR IN
ADVANCED NEGOTIATIONS
SECOND LEVEL 36% 64%
18,000 SQ FT ≈ 45% OF PROJECTED TOTAL RETAIL
REVENUE LEASED OR IN ADVANCED
NEGOTIATIONS
STREET LEVEL 10% 5% 84%
15,000 SQ FT
LOWER LEVEL 1 100%
20,000 SQ FT
LOWER LEVEL 2 100%
14,000 SQ FT
- 25% 50% 75% 100%
LEASED ADVANCED NEGOTIATIONS REMAINING TO LEASE
Source: Company reports.
17EXPLORING CONDOMINIUM EXECUTION AT 15 WEST 61ST STREET
15 WEST 61ST STREET OFFERING
POTENTIAL AVERAGE PRICE POINT IN THE $3.2 - 3.5M RANGE
≈ 85% OF HOMES PRICED < $5M, WHERE MARKET VELOCITY IS GREATEST
≈ 40% OF HOMES HAVE PRIVATE OUTDOOR SPACE
FINANCIAL IMPACT
ESTIMATED GROSS CONDO VALUE NEARLY 50% GREATER THAN RENTAL VALUE
POTENTIAL $150M PRETAX INCREMENTAL PROFIT UNDER CONDO SCENARIO
MODEST UPGRADES TO FINISHES | INCREASE TO CAPITAL BUDGET
POTENTIAL SCHEDULE
MANHATTAN CONDOMINIUM MARKET CONDITIONS
LAUNCH PRE-SALES MARKETING LATE 2018
CONTRACTS DOWN 10% YEAR-OVER-YEAR
OPEN SALES CENTER AND MODELS SPRING 2019
NEW DEVELOPMENT INVENTORY UP 12% YEAR-OVER-YEAR
FINALIZE CONDOMINIUM REGIME AND COMMENCE SETTLEMENTS 2H 2019
PRICING UP 5% BUT SELLER CONCESSIONS INCREASING
Source: Corcoran & Sunshine, Company reports.
All figures preliminary and subject to change based on future market conditions.
18KEY Q3 TAKEAWAYS
HEALTHY ECONOMIC GROWTH SUPPORTING STRONGER APARTMENT FUNDAMENTALS IN MOST
AVB REGIONS
SAME-STORE RENT CHANGE IMPROVED ON A YEAR-OVER-YEAR BASIS IN EACH OF THE LAST
TWO QUARTERS
DEVELOPMENT ACTIVITY TRACKING EXPECTATIONS AND CREATING VALUE,
DESPITE COST CHALLENGES IN SELECT MARKETS
CONTINUING TO ADJUST PORTFOLIO ALLOCATION THROUGH A ROBUST TRANSACTION MARKET
RETAIL LEASING AT 15 WEST 61ST STREET PROGRESSING WELL; EVALUATING OPPORTUNITY TO
ENHANCE VALUE OF RESIDENTIAL PORTION VIA A CONDOMINIUM EXECUTION
19FORWARD-LOOKING STATEMENTS
This presentation dated October 29, 2018 is provided in connection with AvalonBay’s third quarter 2018 earnings conference call on October 30, 2018.
This presentation is intended to accompany AvalonBay’s earnings release dated October 29, 2018, and should be read in conjunction with the earnings
release. AvalonBay does not intend to update any of these documents, which speak only as of their respective dates.
The earnings release is available on AvalonBay’s website at www.avalonbay.com/earnings
For definitions, additional information and reconciliations of non-GAAP financial information and certain defined terms included in this presentation, see
slides 21 to 25 in addition to Attachment 13 to the earnings release.
This presentation dated October 29, 2018 contains forward-looking statements, which are indicated by the use of words such as “expects,” “projects,”
“forecast,” “outlook,” “estimate” and other words that do not relate to historical matters. Actual results may differ materially. For information
concerning risks and other factors that could cause such differences, see “Forward Looking Statements” in AvalonBay’s earnings release that
accompanies this presentation. The Company does not undertake a duty to update the projections and expectations stated in this presentation, which
speak only as of the date of this presentation unless otherwise referenced.
20DEFINITIONS & RECONCILIATIONS OF NON-GAAP FINANCIAL
MEASURES AND OTHER TERMS
Annualized Q3 2018 cash from operations available for investment $ in thousands Q3
is the Company’s third quarter 2018 Core FFO, less (i) third quarter 2018
2018 dividends declared – common and (ii) third quarter 2018 Asset Core FFO attributable to common stockholders $ 315,352
Preservation Capex, annualized. Annualized Q3 2018 cash from Dividends declared - common (203,334)
operations available for investment does not represent the Established and Other Stabilized Asset
(20,189)
Company’s net cash provided by operating activities as presented in Preservation Capex
the Company’s consolidated financial statements. A reconciliation of Q3 2018 cash from operations available for
$ 91,829
Annualized Q3 2018 cash from operations available for investment investment
to Core FFO is as follows:
Annualized Q3 2018 cash from operations available
$ 367,316
for investment
Asset Preservation Capex represents capital expenditures that will not directly result in increased revenue or expense savings.
Development Communities are communities that are under construction and for which a certificate or certificates of occupancy for the entire community has not
been received. These communities may be partially complete and operating.
Estimated Value Creation of a development community reflects Management’s estimate of the Projected NOI for the first 12 months of Stabilized Operations of the
Development Community following its date of completion or projected completion, divided by Management’s estimate of the Market Cap Rate for that community at
such date, less the Total Capital Cost or estimated Total Capital Cost of the community at the time of completion.
21DEFINITIONS & RECONCILIATIONS OF NON-GAAP FINANCIAL
MEASURES AND OTHER TERMS
FFO and Core FFO are considered by management to be $ in thousands Q3 Q3 YTD YTD
2018 2017 2018 2017
supplemental measures of our operating and financial performance.
Net income attributable to common stockholders $ 192,486 $ 238,248 $ 588,791 $ 639,348
FFO is calculated by the Company in accordance with the definition Depreciation - real estate assets, including joint
adopted by the Board of Governors of the National Association of 156,204 144,409 470,976 426,494
venture adjustments
Real Estate Investment Trusts (“NAREIT”). FFO is calculated by the Distributions to noncontrolling interests 11 11 33 32
Company as Net income or loss attributable to common Gain on sale of unconsolidated entities holding
(8,636) (31,413) (8,636) (40,110)
previously depreciated real estate
stockholders computed in accordance with GAAP, adjusted for gains
Gain on sale of previously depreciated real estate (27,243) (27,738) (132,444) (159,754)
or losses on sales of previously depreciated operating communities, FFO attributable to common stockholders $ 312,822 $ 323,517 $ 918,720 $ 866,010
cumulative effect of a change in accounting principle, impairment
write-downs of depreciable real estate assets, write-downs of Adjusting items:
investments in affiliates which are driven by a decrease in the value Joint venture losses 307 430 314 811
of depreciable real estate assets held by the affiliate and Joint venture promote - (19,977) (925) (26,742)
Impairment loss on real estate - - - 9,350
depreciation of real estate assets, including adjustments for
Casualty (gain) loss, net on real estate (554) - (612) 2,338
unconsolidated partnerships and joint ventures. By excluding gains Business interruption insurance proceeds - (3,495) - (3,495)
or losses related to dispositions of previously depreciated operating Lost NOI from casualty losses covered by business
- 2,375 1,730 6,242
communities and excluding real estate depreciation (which can vary interruption insurance
among owners of identical assets in similar condition based on Loss on extinguishment of consolidated debt 1,678 - 2,717 24,162
Advocacy contributions 843 - 1,449 -
historical cost accounting and useful life estimates), FFO can help
Hedge ineffectiveness - - - (753)
one compare the operating and financial performance of a Severance related costs 80 18 582 153
company’s real estate between periods or as compared to different Development pursuit write-offs and expensed transaction costs,
188net 339 758 1,174
companies. Core FFO is the Company's FFO as adjusted for non-core (Gain) loss on other real estate transactions (12) 120 (335) (246)
items outlined in the table below. By further adjusting for items that Legal settlements - 7 367 91
are not considered part of our core business operations, Core FFO Core FFO attributable to common stockholders $ 315,352 $ 303,334 $ 924,765 $ 879,095
can help one compare the core operating and financial performance
Average shares outstanding - diluted 138,323,064 138,307,046 138,230,724 138,006,192
of the Company between periods. Reconciliations of Net income
attributable to common stockholders to FFO and to Core FFO for all Earnings per share - diluted $ 1.39 $ 1.72 $ 4.26 $ 4.63
periods presented in this presentation are as follows: FFO per common share - diluted $ 2.26 $ 2.34 $ 6.65 $ 6.28
Core FFO per common share - diluted $ 2.28 $ 2.19 $ 6.69 $ 6.37
22DEFINITIONS & RECONCILIATIONS OF NON-GAAP FINANCIAL
MEASURES AND OTHER TERMS
Like-Term Effective Rent Change represents the percentage change in effective rent between two leases of the same lease term category for the same apartment.
The Company defines effective rent as the contractual rent for an apartment less amortized concessions and discounts. Average Like-Term Effective Rent Change is
weighted based on the number of leases meeting the criteria for new move-in and renewal like-term effective rent change. New move-in like-term effective rent
change is the change in effective rent between the contractual rent for a resident who moves out of an apartment, and the contractual rent for a resident who moves
into the same apartment with the same lease term category. Renewal like-term effective rent change is the change in effective rent between two consecutive leases
of the same lease term category for the same resident occupying the same apartment.
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 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 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 Market Cap Rate is weighted based on the gross
sales price of each community.
Projected NOI for certain Development Communities and in calculating the Market Cap Rate represents management’s estimate 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 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 generally 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.
23DEFINITIONS & RECONCILIATIONS OF NON-GAAP FINANCIAL
MEASURES AND OTHER TERMS
Stabilized 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, 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. With respect to communities where development
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.
24DEFINITIONS & RECONCILIATIONS OF NON-GAAP FINANCIAL
MEASURES AND OTHER TERMS
The Unleveraged Internal Rates of Return (IRR) shown on slide 13 are internal rates of return calculated by the Company for properties based on the following
amounts related to such properties and the timing of recognition of such amounts: (i) total revenue produced by such properties during the period owned by the
Company and (ii) the gross sales price net of selling costs, offset by (iii) capital expenditures incurred in the acquisition or development, and maintenance of the
community and (iv) total direct operating expenses during the period owned by the Company. In the case of properties still owned by the Company, for purposes of
these calculations the Company has determined an estimated sales price net of selling costs as of September 30, 2018. In the case of estimated sales prices, market
conditions could change for any of a number of reasons causing the Company’s estimate to change. There can be no assurance that if these properties were sold
today that they would achieve the Company’s internal estimate used for these calculations. In the case of communities owned through joint ventures, the full value
of the property’s revenues, expenses and capital expenditures is included in these calculations, not just the Company’s share, and asset management and property
management fees paid to the Company are not treated as property-level expenses. Excluded from these calculations are communities located in markets where the
Company no longer operates and certain communities located in non-core markets (Texas). 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. In addition, as
noted above, the full amounts of revenues, expenses and capital expenditures for partially owned communities are included in the calculations. Therefore,
Unleveraged IRR is not a substitute for the Company’s 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 or development and
redevelopment, management and sale of a community, before the impact of indirect expenses and Company overhead, and such indication of gross value creation
can be used to analyze past experience in investing in different types of markets and investing at different times. The Company does not represent that it will achieve
similar Unleveraged IRRs in the future, nor does the Company represent that, in the case of properties not yet sold, that the realized Unleveraged IRR upon sale will
equal the unrealized Unleveraged IRR used in these calculations. The Unleveraged IRR amounts presented in the slides are, by the nature of their calculation,
weighted based on the amount and timing of recognition of all revenues (including net sales proceeds), expenses and capital expenditures.
For slide 13, 177 communities are included in the calculations, including 120 still owned in full or in part by the Company. The weighted average holding period of
these 177 communities (weighted based on actual or estimated gross sales price) is 9.7 years.
Weighted average initial cost of capital is management’s estimate based on 2018 historical initial cost of capital. Costs may vary based on timing, source, market
conditions and other factors.
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