10-KPeriod: FY2012

AVALONBAY COMMUNITIES INC Annual Report, Year Ended Dec 31, 2012

Filed February 22, 2013For Securities:AVB

Summary

AvalonBay Communities, Inc. (AVB) is a leading real estate investment trust (REIT) focused on developing, acquiring, owning, and operating multifamily communities in high-barrier-to-entry markets across the United States. As of January 31, 2013, the company owned 178 operating apartment communities, with 23 more under construction and rights to develop an additional 34. A significant development for the company is the pending acquisition of Archstone, expected to close in Q1 2013, which will substantially increase AVB's property portfolio and market presence. The company operates under distinct brands (Avalon, AVA, Eaves by Avalon) to cater to various customer segments. AVB's strategy emphasizes long-term stockholder value through strategic investments, operational efficiency, and a strong focus on high-barrier markets expected to yield higher cash flow growth.

Financial Highlights

34 data points
Beta

Revenue

$1.00B

Net Income

$423.87M

42.4% Net Margin

EPS (Diluted)

$4.32

Total Assets

$11.16B

Cash & Equivalents

$2.73B

Free Cash Flow

$540.82M

Financial Statements
Beta
Revenue$1.00B
Operating Expenses$785.58M
Operating Income$667.93M
Interest Expense$136.92M
Net Income$423.87M
EPS (Basic)$4.34
EPS (Diluted)$4.32
Shares Outstanding (Basic)97.42M
Shares Outstanding (Diluted)98.03M

Key Highlights

  • 1AvalonBay Communities (AVB) is a major player in the multifamily real estate sector, operating 178 apartment communities with a significant development pipeline of 23 under construction and 34 planned.
  • 2The company is in the process of a transformative acquisition of Archstone, expected to close in Q1 2013, which will significantly expand its portfolio and market reach.
  • 3AVB focuses on high barrier to entry markets, believing this strategy leads to higher long-term cash flow growth due to limited new supply and affordability challenges.
  • 4The company employs a multi-brand strategy (Avalon, AVA, Eaves by Avalon) to target diverse customer segments within its markets.
  • 5AVB is committed to REIT status, focusing on generating income from rental properties and distributing income to shareholders.
  • 6The company demonstrated financial flexibility by raising approximately $3.37 billion in capital during 2012 through equity and debt issuances, primarily to fund its strategic initiatives, including the Archstone acquisition.

Frequently Asked Questions

AvalonBay Communities' primary strategy is to increase long-term stockholder value by developing, redeveloping, acquiring, operating, and strategically disposing of apartment communities in high barrier to entry U.S. markets. They focus on markets with limited new supply and affordability challenges, believing this leads to higher long-term growth in cash flows. They also aim to provide a range of multifamily offerings tailored to different customer segments.

The pending Archstone Acquisition is a transformative event for AvalonBay. It involves acquiring approximately 40% of Archstone's assets, significantly expanding AVB's portfolio with 66 apartment communities (22,222 apartment homes) and adding new markets. This acquisition is expected to close in the first quarter of 2013 and will substantially alter the company's scale, market presence, and capital structure.

AvalonBay manages its property portfolio by segmenting them into Established Communities, Other Stabilized Communities, and Development/Redevelopment Communities. They also employ a multi-brand strategy with 'Avalon' for upscale living, 'AVA' for urban, transit-oriented living with smaller units, and 'Eaves by Avalon' for value-conscious renters, often in suburban settings. This segmentation and branding allows them to cater to specific market needs and consumer preferences.

Key risks include the potential failure to consummate the Archstone Acquisition on anticipated terms, which could result in significant costs and a termination fee. If completed, there are risks associated with integrating the acquired portfolio, managing substantial new debt ($3.7 billion assumed), potential diversion of management attention, and the possibility of not realizing the intended benefits of the acquisition. Other general risks for AVB include development and construction cost overruns, market and economic downturns, competition, and interest rate fluctuations.