WINTER/SPRING 2018 INVESTOR UPDATE March 5, 2018

Transcription

1 1 WINTER/SPRING 2018 INVESTOR UPDATE March 5, 2018

2 See Appendix for information about forwardlooking statements and definitions of nongaap financial measures and other terms. 2

3 The projections for AvalonBay Communities, Inc. included in this presentation were originally included in its January 31, 2018 earnings release, which is available under Investor relations at These projections are provided for historical reference and have not been reviewed or updated for purposes of this presentation, and the inclusion of these projections in this presentation is not a reaffirmation of these projections or a confirmation with respect to the accuracy of the projections as of any date subsequent to January 31, The projections were based on the expectations, forecasts and assumptions on January 31, 2018, which may not be realized and/or may have changed since that date, and also involve risks and uncertainties that might not be anticipated or could not be predicted accurately. These could cause these projections to be inaccurate as of any date subsequent to January 31, 2018, and may also cause actual results to differ materially from those expressed or implied by the projections, as described in ForwardLooking Statements in the Appendix. AvalonBay does not undertake a duty to update any projections or other forwardlooking statements contained in this presentation, including but not limited to its expected 2018 operating results and other financial and economic data forecasts. AvalonBay may, in its discretion, provide information in future public announcements regarding its outlook that may be of interest to the investors, analysts and other members of the financial and investment communities. The format and extent of future outlooks may be different from the format and extent of the information contained in this presentation. AvalonBay files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission. Our SEC filings are available to the public free of charge from the SEC website at and on our website at the address above. You should read this presentation in conjunction with our Annual Report on Form 10K for the year ended December 31, 2017 and the Quarterly Reports on Form 10Q, Current Reports on Form 8K and other reports and documents we file with the SEC after the date of this presentation before you make any investment decisions involving AvalonBay and its securities. The date of this presentation is March 5,

4 WHAT YOU NEED TO KNOW WAS A PRODUCTIVE YEAR FOR AVB COMPLETED $1.9 BILLION OF NEW DEVELOPMENT (A COMPANY RECORD) ENTERED TWO NEW MARKETS, SOUTHEAST FLORIDA AND DENVER REDUCED NEARTERM DEBT MATURITIES AND ENHANCED FINANCIAL FLEXIBILITY DELIVERED A SEVENTH CONSECUTIVE YEAR OF ABOVE SECTOR AVERAGE CORE FFO PER SHARE GROWTH 2 IN 2018, WE BELIEVE APARTMENT DEMAND WILL REMAIN HEALTHY BUT EXPECT APARTMENT FUNDAMENTALS TO MODERATE DUE TO AN INCREASE IN NEW APARTMENT DELIVERIES PROJECTING FULL YEAR SAMESTORE REVENUE GROWTH IN THE LOW 2% RANGE EXPECTING DEVELOPMENT CONTRIBUTION TO REMAIN HEALTHY, BUT MODERATING RELATIVE TO 17 DUE TO LOWER DELIVERY VOLUME MANAGING LIQUIDITY AND THE BALANCE SHEET TO PURSUE GROWTH IN A RISKMEASURED WAY 3 Q SAMESTORE TOTAL RENTAL REVENUE EXPECTED TO INCREASE BETWEEN 2.3% AND 2.4% OVER THE PRIOR YEAR PERIOD Source: Company reports. 4

5 2018 OUTLOOK SUMMARY JANUARY 2018 OUTLOOK FULL YEAR PROJECTED CORE FFO PER SHARE RANGE PROJECTED CORE FFO PER SHARE CHANGE AT THE MIDPOINT OF THE OUTLOOK RANGE $ 8.73 $ % SAMESTORE COMMUNITIES RENTAL REVENUE CHANGE OPERATING EXPENSE CHANGE NET OPERATING INCOME CHANGE 1.5% 2.75% 2.0% 3.0% 1.25% 2.75% DEVELOPMENT ACTIVITY (MILLIONS) EXPECTED CAPITAL COST FOR DEVELOPMENT COMMUNITIES STARTED IN 2018 EXPECTED CAPITAL COST FOR DEVELOPMENT COMMUNITIES COMPLETED IN 2018 (AT SHARE) PROJECTED NOI FROM DEVELOPMENT COMMUNITIES $ 800 $ 1,000 $ 700 $ 47 $ 57 Source: Company reports. See Appendix for a reconciliation of Projected Net Income attributable to common stockholders to Projected FFO and to Projected Core FFO. 5

6 SLOWER NOI GROWTH AND FEWER DEVELOPMENT DELIVERIES EXPECTED TO IMPACT 2018 CORE FFO PER SHARE GROWTH RATE $8.99 +$ % 2017 ACTUAL $0.25 (3.1%) COMPONENTS OF CORE FFO PER SHARE GROWTH $0.11 (1.3%) $ PROJECTED BASED ON THE MIDPOINT OF OUTLOOK +$ % $0.30 (3.5%) $0.09 (1.0%) $8.59 +$ % $8.62 +$ % $9.02 +$ % $8.93 +$ % $8.19 NOI FROM SAMESTORE & REDEVELOPMENT NOI FROM NEW INVESTMENT (incl. Dev.) CAPITAL MARKETS ACTIVITY (incl. Acq. & Disp.) OVERHEAD, JV INCOME & MGMT FEES ACTUAL CORE FFO PER SHARE (GROWTH) $8.62 NOI FROM SAMESTORE & REDEVELOPMENT NOI FROM NEW INVESTMENT (incl. Dev.) CAPITAL MARKETS ACTIVITY (incl. Acq. & Disp.) OVERHEAD, JV INCOME & MGMT FEES PROJECTED CORE FFO PER SHARE (GROWTH) Source: Company reports. % s represent the contribution to reported and Projected Core FFO per share growth. 6

7 THE PACE OF JOB GROWTH IS EXPECTED TO SLOW IN 2018, BUT WAGE GROWTH SHOULD ACCELERATE ACROSS ALL AVB REGIONS 6% TOTAL PERSONAL INCOME GROWTH ACTUAL 2017 AND PROJECTED % 2% U.S AVB MARKETS NEW METRO ENGLAND NY/NJ JOB GROWTH MID ATLANTIC PACIFIC NORTHWEST NORTHERN CALIFORNIA SOUTHERN CALIFORNIA U.S. AVB MARKETS NEW ENGLAND METRO BY/NJ MIDATLANTIC PACIFIC NORTHWESTNORTHERN CALIFORNIASOUTHERN CALIFORNIA WAGE GROWTH Source: National Association of Business Economics, Moody s Analytics, AVB Market Research Group. AVB Markets excludes expansion markets (Southeast Florida and Denver). 7

8 NEW APARTMENT DELIVERIES PROJECTED TO INCREASE IN THE PACIFIC NW AND SO CAL IN 2018; SOME RELIEF IN % NEW APARTMENT COMPLETIONS ACTUAL 2017 AND PROJECTED AS A % OF EXISTING APARTMENT INVENTORY 4% 2% AVB MARKETS NEW ENGLAND METRO NY/NJ MIDATLANTIC PACIFIC NORTHWEST NORTHERN CALIFORNIA SOUTHERN CALIFORNIA PROJECTION 2019 PROJECTION Source: AVB Market Research Group. AVB Markets excludes expansion markets (Southeast Florida and Denver). 8

9 URBAN SUBMARKETS ARE EXPECTED TO CONTINUE TO ABSORB THE BULK OF NEW SUPPLY 4% SUBURBAN AND URBAN NEW APARTMENT COMPLETIONS IN AVB MARKETS ACTUAL 2017 AND PROJECTED AS A % OF EXISTING APARTMENT INVENTORY 3% 2% 1% SUBURBAN URBAN Source: AVB Market Research Group. AVB Markets excludes expansion markets (Southeast Florida and Denver). The Company defines urban submarkets as those with more than 3,500 households per square mile; all other submarkets are considered suburban. 9

10 FULL YEAR SAMESTORE REVENUE GROWTH PROJECTED TO BE IN THE LOW2% RANGE 2018 PROJECTED FULL YEAR AVB SAMESTORE RENTAL REVENUE GROWTH 6% 4% HIGHEND 2.75% 2% LOWEND 1.5% AVALONBAY NEW ENGLAND METRO NY/NJ MIDATLANTIC PACIFIC NORTHWEST NORTHERN CALIFORNIA SOUTHERN CALIFORNIA Source: Company reports PROJECTED 2017 ACTUAL 10

11 AND REMAIN REASONABLY STABLE THROUGHOUT % QUARTERLY YEAROVERYEAR AVB SAMESTORE RENTAL REVENUE GROWTH ACTUAL AND PROJECTED % 4% PROJECTED 2% Source: Company reports. 11

12 PROJECTED 2018 AVB DEVELOPMENT DELIVERIES DOWN RELATIVE TO 2017, EXPECTED TO INCREASE IN ,500 QUARTERLY DEVELOPMENT APARTMENT DELIVERIES 2017 ACTUAL AND PROJECTED ,000 2,000 APARTMENTS VERSUS Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Source: Company reports. 12

13 ABOUT AVALONBAY 13 Avalon Newcastle Commons Newcastle, WA

14 About AvalonBay AVALONBAY AT A GLANCE $32B TOTAL ENTERPRISE VALUE 288 APARTMENT COMMUNITIES 20 U.S. MARKETS $3.0B UNDER CONSTRUCTION 13.4% ANNUALIZED TOTAL SHAREHOLDER RETURN SINCE IPO 5.4% ANNUALIZED DIVIDEND GROWTH SINCE IPO AVALONBAY IS AN EQUITY REIT IN THE BUSINESS OF DEVELOPING, REDEVELOPING, ACQUIRING, AND MANAGING APARTMENT COMMUNITIES IN LEADING METROPOLITAN AREAS PRIMARILY IN NEWENGLAND, THE NEWYORK / NEW JERSEY METRO AREA, THE MIDATLANTIC, THE PACIFIC NORTHWEST, AND NORTHERN AND SOUTHERN CALIFORNIA S&P 500 COMPANY CONSERVATIVE BALANCE SHEET WITH SECTOR LEADING CREDIT METRICS STRONG CREDIT RATINGS S&P A, STABLE OUTLOOK MOODY S A3, STABLE OUTLOOK Source: Company reports. Data as of December 31, Initial public offering (IPO), November 11, Total shareholder return calculated as the change in the value over the period stated with all dividends reinvested. Dividend growth includes AVN & BYA dividends prior to merger. 14

15 About AvalonBay SOURCES OF ALPHA U.S. APARTMENT MARKETS MARKET SELECTION (COASTAL; HIGH COST OF HOMEOWNERSHIP) OPERATING PLATFORM (SCALE; TECHNOLOGY) GROWTH PLATFORMS (ACQUISITIONS; DEVELOPMENT; REDEVELOPMENT) PORTFOLIO MANAGEMENT (MARKET; SUBMARKET; BRAND ALLOCATION) CAPITAL MANAGEMENT (SOURCING; BALANCE SHEET MANAGEMENT) TOTAL INVESTMENT RETURN Conceptual presentation. Not presented to scale. 15

16 About AvalonBay STRONG DIVIDEND GROWTH TRACK RECORD ANNUAL COMMON DIVIDENDS PAID PER SHARE INDEXED TO 100 IN % SINCE YEAR CAGR= 5.3% Source: Company reports. 16

17 About AvalonBay OPERATING A HIGHQUALITY, DIVERSE PORTFOLIO GARDEN MIDRISE HIGHRISE AVALON HUNTINGTON STATION HUNTINGTON STATION, NY AVA H STREET WASHINGTON, D.C. AVALON WEST CHELSEA NEW YORK, NY EAVES RANCHO PENASQUITOS AVALON AT ASSEMBLY ROW SAN DIEGO, CA SOMERVILLE, MA The Company defines urban submarkets as those with more than 3,500 households per square mile; all other submarkets are considered suburban. AVA 55 NINTH SAN FRANCSICO, CA 17 AVERAGE COMMUNITY AGE = 19 YEARS URBAN SUBURBAN MIX = 37% 63%

18 APARTMENT MARKET FUNDAMENTALS 18 Avalon Chino Hills Chino Hills, CA

19 YEAROVERYEAR % CHANGE THOUSANDS YEAROVERYEAR % CHANGE Apartment Market Fundamentals A HEALTHY LABOR MARKET IS SUPPORTING BETTER WAGE GROWTH INITIAL UNEMPLOYMENT CLAIMS WELL BELOW 300, U.S. WEEKLY INITIAL JOBLESS CLAIMS SEASONALLY ADJUSTED UNEMPLOYMENT RATE AT A 17YEAR LOW U.S. UNEMPLOYMENT RATE SEASONALLY ADJUSTED % 300 (1) 6% WEEK MOVING AVERAGE U.S. AVERAGE HOURLY EARNINGS ATLANTA FED U.S. HOURLY WAGE GROWTH TRACKER SEASONALLY ADJUSTED 4% 2% WAGE GROWTH SLOWLY IMPROVING 12% 6% TARGET RENTERS DOING WELL ACCORDING TO ADP DATA FULLTIME TO FULLTIME U.S. WAGE GROWTH (ADP) ALL FULLTIME Q PROFESSIONAL & BUSINESS SERVICES YEAR OLDS AVERAGE HOURLY EARNINGS (SEASONALLY ADJUSTED) WAGE GROWTH TRACKER JOB HOLDERS JOB SWITCHERS JOB HOLDERS JOB SWITCHERS JOB HOLDERS JOB SWITCHERS Source: U.S. Employment & Training Administration, U.S. Bureau of Labor Statistics, Federal Reserve Bank of Atlanta, ADP Workforce Vitality Report. 19

20 YEAROVERYEAR % CHANGE MILLIONS INDEXED TO 100 IN 1985 TRILLIONS CONSUMER CONFIDENCE AND HEALTHY BALANCE SHEETS FUELING SPENDING AND HOUSEHOLD FORMATION Apartment Market Fundamentals CONSUMER CONFIDENCE SOARING 1 2 CONSUMER CONFIDENCE INDEX SEASONALLY ADJUSTED HOUSEHOLD NET WORTH UP; OBLIGATIONS LOW U.S. HOUSEHOLD NET WORTH & FINANCIAL OBLIGATIONS RATIO SEASONALLY ADJUSTED % 90 (1) 75 17% % U.S. HOUSEHOLD NET WORTH FINANCIAL OBLIGATIONS RATIO (RIGHT AXIS) RETAIL SALES IMPROVING 3 4 U.S. RETAIL SALES SEASONALLY ADJUSTED ANNUALIZED RATE HOUSEHOLD FORMATION HEALTHY YEAROVERYEAR CHANGE IN THE NUMBER OF U.S. HOUSEHOLDS 6% 2 AVG. 1 M 1 (6%) Source: The Conference Board, U.S. Board of Governors of the Federal Reserve System, U.S. Census Bureau. 20

21 INDEXED TO 100 IN 1986 $ BILLIONS YEAROVERYEAR % CHANGE Apartment Market Fundamentals CORPORATE PROFITS, BUSINESS CONFIDENCE AND INVESTMENT RISING CORPORATE PROFITS IMPROVING 1 2 SEASONALLY ADJUSTED ANNUALIZED RATE AND BUSINESS CONFIDENCE IS STRONG SURVEY OF BUSINESS CONFIDENCE DIFFUSION INDEX 1, , U.S. WORLD SMALL BUSINESS CONFIDENCE AT CYCLICAL HIGH 3 4 SMALL BUSINESS: NORMALIZED OPTIMISM INDEX SEASONALLY ADJUSTED BUSINESS EQUIPMENT INVESTMENT IMPROVING U.S. PRIVATE FIXED INVESTMENT SEASONALLY ADJUSTED ANNUALIZED RATE % 95 15% Source: U.S. Bureau of Economic Analysis, Moody's Analytics, National Federation of Independent Business. Corporate profits includes Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj). (15%) NONRESIDENTIAL EQUIPMENT INTELLECTUAL PROPERTY PRODUCTS 21

22 YEAROVERYEAR % CHANGE MILLIONS MILLIONS AGE Apartment Market Fundamentals DEMOGRAPHICS SUPPORTING APARTMENT DEMAND REMAIN POSITIVE DEMOGRAPHICS CONTINUE TO LOOK FAVORABLE FOR APARTMENT OWNERS U.S. POPULATION BY AGE YR OLDS 48 THE KEY YEAR OLD COHORT IS NOT PROJECTED TO PEAK IN SIZE UNTIL 2024 PROJECTED NUMBER OF YR OLDS AT THE END OF EACH YEAR 4 (1) YR OLDS YR OLDS YR OLDS YR OLDS % AND THIS GROUP IS DOING WELL IN THE LABOR MARKET U.S. EMPLOYMENT GROWTH SEASONALLY ADJUSTED 29 YOUNGADULTS CONTINUING TO DELAY FAMILY FORMATION AVERAGE AGE AT FIRST MARRIAGE & MOTHER AT FIRST BIRTH 2% U.S YR OLDS AVERAGE AGE AT FIRST MARRIAGE AVERAGE AGE OF MOTHER AT FIRST BIRTH Source: U.S. Census Bureau, U.S. Bureau of Labor Statistics, Centers for Disease Control and Prevention. 22

23 INDEXED TO ZERO LESS AVAILABLE MORE AVAILABLE MILLIONS THOUSANDS THOUSANDS SINGLE FAMILY DEMAND AND SUPPLY INCREASING; Apartment Market Fundamentals MULTIFAMILY STARTS FLAT, FINANCING BECOMING MORE CONSTRAINED 1 2 U.S. EXISTING & NEW HOME SALES SEASONALLY ADJUSTED ANNUALIZED RATE 6 SINGLE FAMILY DEMAND INCREASING 800 1,000 SINGLE FAMILY STARTS TRENDING UPWARD; MULTIFAMILY STARTS FLAT FOR THE LAST 2 YEARS U.S. HOUSING STARTS SEASONALLY ADJUSTED ANNUALIZED RATE (1) EXISTING HOME SALES NEW HOME SALES (RIGHT AXIS) SINGLE FAMILY MULTIFAMILY DEBT & EQUITY INDICES POINT TOWARD TIGHTER MULTIFAMILY CAPITAL MARKET CONDITIONS NMHC DEBT & EQUITY INDICES 60% TIGHTER MULTIFAMILY LENDING STANDARDS COOLING LOAN DEMAND SENIOR LOAN OFFICER OPINION SURVEY ON BANK MULTIFAMILY LENDING PRACTICES 30% (40) DEBT EQUITY (30%) TIGHTENING STANDARDS FOR LOANS REPORTING STRONGER DEMAND FOR LOANS Source: National Association of Realtors, U.S. Census Bureau, National Multifamily Housing Council ( NMHC ), The Federal Reserve Board. 23

24 GROWTH STRATEGY 24 Avalon North Station Boston, MA

25 Growth Strategy MULTIPLE GROWTH PLATFORMS Development Growing the portfolio Acquisitions Dispositions Shaping the portfolio Redevelopment Positioning the portfolio Mergers & Acquisitions Transforming the portfolio 25

26 Growth Strategy DEVELOPMENT HAS PROVIDED CONSISTENTLY PROFITABLE EXTERNAL GROWTH FOR AVB 12% AVB DEVELOPMENT YIELDS AND TRANSACTION CAPITALIZATION RATES % 4% AVB DEVELOPMENT COMPLETION YIELD Source: Company reports. AVB WEIGHTED AVERAGE DISPOSITION CAPITALIZATION RATE ( ) ESTIMATED DEVELOPMENT COMPLETION MARKET CAPITALIZATION RATE ( ) 26

27 $ BILLIONS $ BILLIONS Growth Strategy AND WILL CONTINUE TO BE A PRIMARY DRIVER OF GROWTH DEVELOPMENT ACTIVITY UNDERWAY AS A % OF TOTAL ENTERPRISE VALUE 2 1 DEVELOPMENT STARTS 2018 PROJECTED 5 '05 '07 '09 '11 '13 '15 '17 25% 4 20% 3 15% 2 10% 1 5% PROJECTED (1) DEVELOPMENT VOLUME UNDERWAY AT YEAREND Source: Company reports. Projection as of January 31, (1) Assumes Total Enterprise Value as of December 31, % OF TOTAL ENTERPRISE VALUE (RIGHT AXIS) 27

28 Growth Strategy CURRENT CYCLE DEVELOPMENT HAS CREATED SIGNIFICANT VALUE AVB PROJECTED NAV / SHARE CREATION FROM CURRENT CYCLE DEVELOPMENT COMPLETIONS TOTAL CAPITAL COST OF DEVELOPMENT COMPLETIONS SINCE THE BEGINNING OF 2011 $ 6.3B A (1) WEIGHTED AVERAGE INITIAL PROJECTED STABILIZED YIELD 6.7% B PROJECTED NOI $ 420M C = A*B MARKET VALUE OF PROJECTED NOI AT A 4.5% MARKET CAPITALIZATION RATE (1) $ 9.3B D = (C / 4.5%) LESS: COST OF DEVELOPMENT COMPLETIONS SINCE THE BEGINNING OF 2011 (6.3B) (A) VALUE CREATION $ 3.0B E = D A AVERAGE SHARES OUTSTANDING DILUTED, M F NAV / SHARE $ 25 G = E / F Source: Company reports. Amounts rounded. (1) Management s estimate. 28

29 AND LED TO ANNUALIZED CORE FFO PER SHARE GROWTH 280 BASIS POINTS ABOVE THE SECTOR AVERAGE SINCE % ANNUALIZED CORE FFO PER SHARE GROWTH Growth Strategy 11.7% 10% 8.9% 5% AVB MULTIFAMILY SECTOR WEIGHTED AVERAGE Source: S&P Global, Company reports. See Appendix for a reconciliation of Net Income attributable to common stockholders to FFO and to Core FFO and for an explanation of this calculation Core FFO data for CPT and EQR has been adjusted for capitalization changes. Please see slides 53 and 54 for an explanation and reconciliation of calculations presented. 29

30 $ MILLIONS Growth Strategy LAND INVENTORY AT LOWEST LEVEL IN OVER A DECADE LAND HELD FOR DEVELOPMENT AS A % OF TOTAL ENTERPRISE VALUE 500 5% 400 4% 300 3% 200 2% 100 1% LAND HELD FOR DEVELOPMENT AT YEAR END % OF TOTAL ENTERPRISE VALUE (RIGHT AXIS) Source: Company reports. 30

31 PORTFOLIO MANAGEMENT 31 AVA DoBro New York, NY

32 Portfolio Management 25+ YEAR FOCUS ON ATTRACTIVE COASTAL MARKETS PACIFIC NORTHWEST 6% OF NOI 21 COMMUNITIES 5,583 HOMES NORTHERN CALIFORNIA 20% OF NOI 44 COMMUNITIES 13,037 HOMES SOUTHERN CALIFORNIA 20% OF NOI 63 COMMUNITIES 18,459 HOMES COMMUNITIES HOMES ,158 MARKETS SAMESTORE OPERATING MARGIN 71% NEW ENGLAND 14% OF NOI 53 COMMUNITIES 13,097 HOMES METRO NY/NJ 24% OF NOI 59 COMMUNITIES 16,757 HOMES MIDATLANTIC 16% OF NOI 43 COMMUNITIES 15,589 HOMES Source: Company reports. Data as of December 31, % of NOI represents each region s % of total NOI for Q4 2017, including amounts related to communities that have been sold or that are classified as held for sale. Map excludes 1,636 apartment homes in Denver and Southeast FL and noncore markets. Operating margin defined as samestore NOI divided by samestore revenue as reported by S&P Global. 32

33 Portfolio Management OFFERING RESIDENTS DIVERSE CHOICES LOCATION MIX URBAN, 37% PRODUCT TYPE SUBURBAN TOD, 15% BRAND ALLOCATION MIDRISE, 31% HIGHRISE, 28% SUBURBAN, 48% AVA, 10% EAVES, 17% AVALON, 73% GARDEN, 41% Source: Company reports. Data as of December 31, The Company defines urban submarkets as those with more than 3,500 households per square mile; all other submarkets are considered suburban. 33

34 Portfolio Management OPTIMIZING GROWTH THROUGH REVENUE MANAGEMENT RESEARCH & ANALYTICS MARKET RESEARCH GROUP INSIGHTS ENTERPRISE DATA WAREHOUSE ANALYSIS REVENUE MANAGEMENT GROUP CONCLUSIONS RESEARCH & ANALYTICS PRICING STRATEGY (1) PRICING STRATEGY PRICING COMMITTEE ALIGN TO MARKET, SUBMARKET, COMMUNITY AND BRAND ART AND SCIENCE PRICING TACTICS COLLABORATION COLLABORATION MONTHLY PRICING COMMITTEE MEETINGS BIWEEKLY PRICING CALLS THEORY AND PRACTICE MERGE LESSONS LEARNED PRICING TACTICS ALTER PARAMETERS FOR NEW MOVEINS AND RENEWALS EXPIRATIONS MANAGEMENT AMENITY OPTIMIZATION 34

35 Portfolio Management OVERHEAD PLATFORMS BENEFITTING FROM SCALE PROPERTY MANAGEMENT AND OTHER INDIRECT EXPENSES AS A % OF TOTAL REVENUE GENERAL AND ADMINISTRATIVE EXPENSE AS A % OF TOTAL REVENUE % (1) 5% 4% 4% 3% 3% 2% 2% 1% 1% Source: Company reports. 35

36 67.8% 69.7% 69.4% 69.8% 70.4% 70.4% 70.7% Portfolio Management PURSUING INITIATIVES TO DRIVE MARGIN EXPANSION 72% AVB SAMESTORE OPERATING MARGINS CURRENT INITIATIVES LEVERAGING SCALE THROUGH OUR CUSTOMER CARE CENTER 70% REPAIRS AND MAINTENANCE RESILIENT FLOORING SUSTAINABILITY ENHANCEMENTS 68% RESIDENT PORTAL GIVING THE RESIDENT MORE CONTROL OF WHEN AND WHERE INTERACTIONS TAKE PLACE; MORE SELF SERVICE ORIENTED 66% Source: S&P Global, Company reports. Operating margin defined as samestore NOI divided by samestore revenue. 36

37 Portfolio Management MAKING PROGRESS IN OTHER IMPORTANT AREAS OF OUR BUSINESS, TOO CUSTOMER SATISFACTION ASSOCIATE ENGAGEMENT #1 O N L I N E REPUTATION Among Public Multifamily REITs 29 MIDLEASE NPS NET PROMOTER SCORE +7 Points from 2016 Score 4.5 G O O G L E R AT I N G 8,568 Reviews 4.4 T O P 10% G L A S S D O O R R A T I N G IN ASSOCIATE ENGAGEMENT Corporate Executive Board Survey CORPORATE RESPONSIBILITY LEADER IN SUSTAINABILITY Awarded 4 Green Stars ONE OF THE MOST ADVANCED COMPANIES IN THE UNITED STATES Based on ESG (environmental, social & governance performance) Source: Company reports. 37

38 CAPITAL MANAGEMENT 38 AVA Wheaton Silver Spring, MA

39 Capital Management INTEGRATED CAPITAL MANAGEMENT GUIDING PRINCIPLES MatchFund New Commitments Manage Liquidity and Borrowing Capacity Optimize Sourcing of Capital 39

40 Capital Management EMPHASIS ON MATCHFUNDING $1.9B SALE OF 3 COMMUNITIES: UNSECURED DEBT: EQUITY: $ 265M $ 925M $ 660M $1.8B SALE OF 7 COMMUNITIES: UNSECURED DEBT: ASSUMPTION OF SECURED DEBT: $ 525M $ 1.13B $ 140M $1.3B SALE OF 6 COMMUNITIES: UNSECURED DEBT (1) : ASSUMPTION OF SECURED DEBT: $ 480M $ 700M $ 110M $1.6B 13 DEVELOPMENT STARTS TWO LAND PURCHASES (2) $1.7B 9 DEVELOPMENT STARTS (2) 5 STABILIZED ACQUISITIONS $1.3B 8 DEVELOPMENT STARTS 4 STABILIZED ACQUISITIONS (3) Source: Company reports. Amounts rounded. (1) Excludes $1 billion of unsecured debt raised to finance debt repayments. (2) Land purchases for 11 West 61 st Street and AVA Hollywood included in 2015; development commenced in (3) 2017 stabilized acquisitions includes Avalon Morningside Park land purchase. 40

41 Capital Management ATTRACTIVE CAPITAL STRUCTURE 89% OF NOI IS UNENCUMBERED DEBT COMPOSITION 5.0X NET DEBTTOCORE EBITDA 5.4X FIXED CHARGE COVERAGE SECURED, 20% CAPITALIZATION UNSECURED, 80% TOTAL DEBT, 23% TOTAL EQUITY, 77% OTHER, 10% TAXEXEMPT VARIABLE, 11% UNSECURED FIXED RATE, 73% CONVENTIONAL FIXED RATE, 6% Source: Company reports, S&P Global. Data as of December 31, Other includes unsecured and conventional variable rate debt and taxexempt fixed rate debt. 41

42 $ BILLIONS Capital Management DEVELOPMENT UNDERWAY IS 75% MATCHFUNDED 4 DEVELOPMENT ACTIVITY UNDERWAY VERSUS AVAILABLE CAPITAL SOURCES INCLUDES NONSTABILIZED DEVELOPMENT COMPLETIONS AS OF YEAREND 2017 $300M OF INTEREST RATE HEDGES IN PLACE FOR 2018 (1) REMAINING TO FUND, $0.9B 3 2 DEVELOPMENT ACTIVITY, $3.9B Q CASH FROM OPERATIONS AVAILABLE FOR INVESTMENT, ANNUALIZED, $0.4B CASH & CASH EQUIVALENTS, $0.1B 1 SPENTTODATE, $2.6B PROJECTED TOTAL CAPITAL COST (AT SHARE) SOURCES Source: Company reports. See Appendix for defined terms and reconciliations. (1) Represents $300 million of interest rate protection agreements that will hedge against changes in interest rates for projected 2018 debt issuances. 42

43 $ BILLIONS HEALTHY LIQUIDITY AND CREDIT METRICS PROVIDE ENHANCED FINANCIAL FLEXIBILITY Capital Management 2 INVESTMENT COMMITMENTS AND LIQUIDITY AS OF YEAREND DEVELOPMENT ACTIVITY REMAINING TO INVEST, $1.4B LINE OF CREDIT, $1.5B CASH AND CASH EQUIVALENTS, $0.1B EXCESS LIQUIDITY, $0.2B COMMITTED USES LIQUIDITY EXCESS LIQUIDITY Source: Company reports. 43

44 $ BILLIONS WELLLADDERED DEBT MATURITY SCHEDULE, WITH MINIMAL DEBT MATURITIES OVER THE NEXT TWO YEARS DEBT MATURITIES AND AMORTIZATION Capital Management 1.0 4% 0.5 2% MATURITIES & AMORTIZATION % OF TOTAL ENTERPRISE VALUE (RIGHT AXIS) Source: S&P Global, Company reports. 44

45 PORTFOLIO 45 Avalon West Hollywood West Hollywood, CA

46 AVB Portfolio NEW ENGLAND PORTFOLIO BOSTON 53 COMMUNITIES 13,097 APARTMENT HOMES AVERAGE PORTFOLIO AGE 14 YEARS FAIRFIELDNEW HAVEN URBAN, 30% LOCATION MIX HIGHRISE, 31% PRODUCT TYPE SUBURBAN TOD, 10% SUBURBAN, As of December 31, % The Company defines urban submarkets as those with more than 3,500 households per square mile; all other submarkets are considered suburban. MIDRISE, 21% GARDEN, 48% 46

47 AVB Portfolio METRO NY/NJ PORTFOLIO NEW YORK NEW JERSEY LONG ISLAND 59 COMMUNITIES 16,757 APARTMENT HOMES AVERAGE PORTFOLIO AGE 10 YEARS LOCATION MIX PRODUCT TYPE URBAN, 55% SUBURBAN, 32% HIGHRISE, 50% GARDEN, 28% SUBURBAN TOD, As of December 31, % The Company defines urban submarkets as those with more than 3,500 households per square mile; all other submarkets are considered suburban. MIDRISE, 22% 47

48 AVB Portfolio MIDATLANTIC PORTFOLIO 43 COMMUNITIES LOCATION MIX MARYLAND 15,589 APARTMENT HOMES AVERAGE PORTFOLIO AGE 20 YEARS URBAN, 56% SUBURBAN, 36% SUBURBAN TOD, 8% NORTHERN VIRGINIA WASHINGTON D.C. PRODUCT TYPE HIGHRISE, 44% GARDEN, 30% MIDRISE, 26% As of December 31, The Company defines urban submarkets as those with more than 3,500 households per square mile; all other submarkets are considered suburban. 48

49 AVB Portfolio PACIFIC NORTHWEST PORTFOLIO SEATTLE 21 COMMUNITIES 5,583 APARTMENT HOMES AVERAGE PORTFOLIO AGE 11 YEARS LOCATION MIX URBAN, 16% PRODUCT TYPE HIGHRISE, 10% GARDEN, 37% SUBURBAN, 84% MIDRISE, 53% As of December 31, The Company defines urban submarkets as those with more than 3,500 households per square mile; all other submarkets are considered suburban. 49

50 AVB Portfolio NORTHERN CALIFORNIA PORTFOLIO 44 COMMUNITIES NORTHERN CALIFORNIA 13,037 APARTMENT HOMES AVERAGE PORTFOLIO AGE 24 YEARS LOCATION MIX URBAN, 27% SUBURBAN, 34% PRODUCT TYPE SUBURBAN TOD, 39% HIGHRISE, 18% GARDEN, 52% MIDRISE, 30% As of December 31, The Company defines urban submarkets as those with more than 3,500 households per square mile; all other submarkets are considered suburban. 50

51 AVB Portfolio SOUTHERN CALIFORNIA PORTFOLIO 63 COMMUNITIES 18,459 APARTMENT HOMES AVERAGE PORTFOLIO AGE 27 YEARS SAN DIEGO LOS ANGELES ORANGE COUNTY LOCATION MIX PRODUCT TYPE HIGHRISE, 1% URBAN, 25% SUBURBAN, 67% MIDRISE, 45% GARDEN, 53% SUBURBAN TOD, 8% As of December 31, The Company defines urban submarkets as those with more than 3,500 households per square mile; all other submarkets are considered suburban. 51

52 FORWARDLOOKING STATEMENTS This Presentation contains forwardlooking statements as that term is defined under the Private Securities Litigation Reform Act of You can identify forwardlooking statements by our use of the words believe, expect, anticipate, intend, estimate, assume, project, plan, may, shall, will and other similar expressions in this Presentation, that predict or indicate future events and trends and that do not report historical matters. We cannot assure the future results or outcome of the matters described in these statements; rather, these statements merely reflect our current expectations of the approximate outcomes of the matters discussed. We do not undertake a duty to update these forwardlooking statements, and therefore they may not represent our estimates and assumptions after the date of this report. You should not rely on forwardlooking statements because they involve known and unknown risks, uncertainties and other factors, some of which are beyond our control. These risks, uncertainties and other factors may cause our actual results, performance or achievements to differ materially from the anticipated future results, performance or achievements expressed or implied by these forwardlooking statements. You should carefully review the discussion under Item 1A. Risk Factors in the Company s K for further discussion of risks associated with forwardlooking statements. Some of the factors that could cause our actual results, performance or achievements to differ materially from those expressed or implied by these forwardlooking statements include, but are not limited to, the following: we may fail to secure development opportunities due to an inability to reach agreements with third parties to obtain land at attractive prices or to obtain desired zoning and other local approvals; we may abandon or defer development opportunities for a number of reasons, including changes in local market conditions which make development less desirable, increases in costs of development, increases in the cost of capital or lack of capital availability, resulting in losses; construction costs of a community may exceed our original estimates; we may not complete construction and leaseup of communities under development or redevelopment on schedule, resulting in increased interest costs and construction costs and a decrease in our expected rental revenues; occupancy rates and market rents may be adversely affected by competition and local economic and market conditions which are beyond our control; financing may not be available on favorable terms or at all, and our cash flows from operations and access to cost effective capital may be insufficient for the development of our pipeline which could limit our pursuit of opportunities; our cash flows may be insufficient to meet required payments of principal and interest, and we may be unable to refinance existing indebtedness or the terms of such refinancing may not be as favorable as the terms of existing indebtedness; we may be unsuccessful in our management of the U.S. Fund, the AC JV or the REIT vehicles, as defined in the Company s K, that are used with each respective joint venture; we may be unsuccessful in managing changes in our portfolio composition; and our expectations, estimates and assumptions as of the date of this filing regarding the outcome of investigations and/or legal proceedings resulting from the Edgewater casualty loss, are subject to change. 52

53 DEFINITIONS & RECONCILIATIONS OF NONGAAP FINANCIAL MEASURES AND OTHER TERMS AVB Development Completion Yield represents the Projected NOI of a development community upon completion and Stabilized Operations expressed as a percentage of the Total Capital Cost of the community. The Core FFO per share growth multifamily sector weighted average index presented on slide 28 includes AIV, CPT, ESS, EQR, MAA and UDR and is weighted based on total market capitalization per S&P Global as of December 31, Core FFO per share for CPT and EQR is adjusted to account for large portfolio dispositions which occurred in 2016 and resulted in the payment of special dividends by both companies in For the purpose of this calculation, the weighted average share count used to calculate the Core FFO per share amounts for CPT and EQR was reduced by the estimated total amount of special dividends paid (per share special dividend multiplied by the quarterly weighted average share count in which the special dividend was paid) divided by the 20 day trailing average stock price prior to the exdividend date (see slide 54 for the calculations). 53

54 ADDITIONAL DEFINITIONS & RECONCILIATIONS OF NONGAAP FINANCIAL MEASURES AND OTHER TERMS EQR ACTUAL FULL YEAR ACTUAL FULL YEAR $ in thousands Q Q Q Q Q Q Q Q Core FFO $ 289,481 $ 290,359 $ 297,190 $ 302,620 $ 1,179,650 $ 283,721 $ 293,891 $ 304,838 $ 316,787 $ 1,199,237 Wtd. avg. common shares outstanding 382, , , , , , , , , ,756 Reported Core FFO per share $ 0.76 $ 0.76 $ 0.78 $ 0.79 $ 3.09 $ 0.74 $ 0.77 $ 0.80 $ 0.83 $ 3.13 Special dividend per share $ 8.00 $ 3.00 Exdividend date 3/1/2016 9/22/2016 Trailing 20 day stock price period to special dividend $ $ Shares repurchased 41,585 17,761 Cumulative shares repurchased 41,585 41,585 59,345 59,345 59,345 59,345 59,345 59,345 59,345 Adjusted wtd. avg. common shares 340, , , , , , , , , ,756 Adjusted Core FFO per share $ 0.85 $ 0.85 $ 0.92 $ 0.94 $ 3.56 $ 0.88 $ 0.91 $ 0.94 $ 0.98 $ 3.71 CPT ACTUAL FULL YEAR ACTUAL FULL YEAR $ in thousands Q Q Q Q Q Q Q Q Core FFO $ 110,110 $ 105,578 $ 104,232 $ 105,544 $ 425,464 $ 100,355 $ 105,978 $ 103,187 $ 114,552 $ 424,072 Wtd. avg. common shares outstanding 91,593 91,753 91,901 91,926 91,793 92,029 92,074 93,111 97,068 93,571 Reported / Projected Core FFO per share $ 1.20 $ 1.15 $ 1.13 $ 1.15 $ 4.64 $ 1.09 $ 1.15 $ 1.11 $ 1.18 $ 4.53 Special dividend per share $ 4.25 Exdividend date 9/21/2016 Trailing 20 day stock price period to special dividend $ Shares repurchased 4,489 Cumulative shares repurchased 4,489 4,489 4,489 4,489 4,489 4,489 Adjusted wtd. avg. common shares 91,593 91,753 87,412 87,437 89,549 87,540 87,585 88,622 92,579 93,571 Adjusted Core FFO per share $ 1.20 $ 1.15 $ 1.19 $ 1.21 $ 4.75 $ 1.15 $ 1.21 $ 1.16 $ 1.24 $

55 ADDITIONAL DEFINITIONS & RECONCILIATIONS OF NONGAAP FINANCIAL MEASURES AND OTHER TERMS Development Completion Market Capitalization Rate is Management s estimate of the Initial Year Market Capitalization Rate for each development completion in a given year. Established, or SameStore, 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 2018 operating results, Established Communities are consolidated communities that have Stabilized Operations as of January 1, 2017, are not conducting or planning to conduct substantial redevelopment activities and are not held for sale or planned for disposition within the current year. Initial Year Market Capitalization Rate or AVB Weighted Average Disposition Capitalization 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 nonroutine 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. 55

56 ADDITIONAL DEFINITIONS & RECONCILIATIONS OF NONGAAP FINANCIAL MEASURES AND OTHER TERMS 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 writedowns of depreciable real estate assets, writedowns 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 noncore items. 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. Reconciliations of Net Income attributable to common stockholders to FFO and to Core FFO for 2017 and 2010 are as follows: FULL YEAR $ in thousands Net income attributable to common stockholders $ 876,921 $ 175,331 Depreciation real estate assets, including joint venture adjustments 582, ,041 Distributions to noncontrolling interests Gain on sale of unconsolidated entities holding previously depreciated real estate (40,053) Gain on sale of previously depreciated real estate (252,599) (74,074) Casualty and impairment (recovery) loss, net on real estate Gain on acquisition of unconsolidated real estate entity FFO attributable to common stockholders $ 1,167,218 $ 338,353 Adjusting items: Joint venture losses (gains) Joint venture promote (26,742) Impairment loss on real estate 9,350 Casualty loss (gain), net on real estate 2,338 Business interruption insurance proceeds (3,495) Lost NOI from casualty losses covered by business interruption insurance 7,904 Loss (gain) on extinguishment of debt 25,472 Hedge ineffectiveness (753) Severance related costs, compensation plan redesign 87 (1,550) Development pursuit and other writeoffs 1,406 Loss (gain) on sale of other real estate 10,907 Acquisition costs 92 Legal settlements (4,758) (927) Income taxes Loss on interest rate protection agreement Interest income on escrow Federal excise tax (235) Severe weather costs 672 Core FFO attributable to common stockholders $ 1,189,976 $ 337,124 Average shares outstanding diluted 138,066,686 84,632,869 Earnings per share diluted $ 6.35 $ 2.07 FFO per common share diluted $ 8.45 $ 4.00 Core FFO per common share diluted $ 8.62 $

57 ADDITIONAL DEFINITIONS & RECONCILIATIONS OF NONGAAP FINANCIAL MEASURES AND OTHER TERMS Fixed Charge Coverage is calculated by the Company as Core EBITDA divided by the sum of (i) interest expense, net, (ii) capitalized interest and (iii) debt amortization. EBITDA is defined by the Company as net income or loss attributable to the Company before interest income and expense, income taxes, depreciation and amortization. A reconciliation of EBITDA and Core EBITDA and a calculation of Fixed Charge Coverage is as follows: $ in thousands Q Net income attributable to common stockholders $ 237,573 Interest expense, net, inclusive of loss on extinguishment of debt, net 53,833 Income tax expense 39 Depreciation expense 157,100 EBITDA $ 448,545 NOI from real estate assets sold or held for sale (1,369) Gain on sale of communities (92,845) Loss on other real estate transactions 11,153 Joint venture income (358) Consolidated EBITDA after disposition activity $ 365,126 Lost NOI from casualty losses covered by business interruption insurance 1,662 Acquisition costs 92 Severance related costs (66) Development pursuit and other writeoffs 232 Legal settlements (4,849) Core EBITDA $ 362,197 Interest expense, net 52,523 Capitalized interest 13,097 Debt amortization 1,899 Fixed charges $ 67,519 Fixed Charge Coverage 5.4x 57

58 ADDITIONAL DEFINITIONS & RECONCILIATIONS OF NONGAAP FINANCIAL MEASURES AND OTHER TERMS Net DebttoCore 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 Core EBITDA, as adjusted. For a calculation of Core EBITDA, see Fixed Charge Coverage. A calculation of Net DebttoCore EBITDA is as follows: $ in thousands Q Total debt principal (1) $ 7,404,313 Cash and cash in escrow (201,906) Net debt $ 7,202,407 Core EBITDA $ 362,197 Core EBITDA, annualized $ 1,448,788 Net DebttoCore EBITDA 5.0x (1) Balance at December 31, 2017 excludes $10,850 of debt discount and $36,386 of deferred financing costs as reflected in unsecured notes, net, and $16,351 of debt discount and $11,256 of deferred financing costs as reflected in notes payable on the Condensed Consolidated Balance Sheets. 58

59 ADDITIONAL DEFINITIONS & RECONCILIATIONS OF NONGAAP FINANCIAL MEASURES AND OTHER TERMS Projected FFO and Projected Core FFO 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 for the full year 2018 to the ranges provided for projected EPS and corresponding reconciliation of the ranges for Projected FFO per share to the ranges for Projected Core FFO per share are as follows: FULL YEAR 2018 $ in thousands Low Range High Range Projected EPS (diluted) Full Year 2018 $ 5.83 $ 6.23 Depreciation (real estate related) Gain on sale of communities (1.56) (1.76) Projected FFO per share (diluted) Full Year 2018 $ 8.67 $ 9.07 Adjusting items: Joint venture promote and other income, development pursuit and other writeoffs Lost NOI from casualty losses covered by business interruption insurance Loss on extinguishment of consolidated debt Projected Core FFO per share (diluted) Full Year 2018 $ 8.73 $

60 ADDITIONAL DEFINITIONS & RECONCILIATIONS OF NONGAAP FINANCIAL MEASURES AND OTHER TERMS Projected NOI, as used within this presentation for certain Development disclosures and in calculating the Initial Year Market Cap Rate for dispositions, represents management s estimate (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 corporatelevel 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 corporatelevel 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 companywide basis. Given the different dates and fiscal years for which NOI is projected for these communities, the projected allocation of corporatelevel 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. 60

61 ADDITIONAL DEFINITIONS & RECONCILIATIONS OF NONGAAP FINANCIAL MEASURES AND OTHER TERMS Q cash from operations available for investment, annualized is the Company s fourth quarter 2017 Core FFO, less (i) fourth quarter 2017 dividends declared common and (ii) fourth quarter 2017 Asset Preservation costs, annualized. Q cash from operations available for investment, annualized does not represent the Company s Net cash provided by operating activities as presented in the Company s consolidated financial statements. A reconciliation of Q cash from operations available for investment, annualized to Core FFO is as follows: $ in thousands Core FFO attributable to common stockholders $ Q ,881 Dividends declared common (196,094) Established and Other Stabilized Asset Preservation Q cash from operations available for investment $ (21,087) 93,700 Q cash from operations available for investment, annualized $ 374,802 61

62 ADDITIONAL DEFINITIONS & RECONCILIATIONS OF NONGAAP FINANCIAL MEASURES AND OTHER TERMS Stabilized Operations is defined as the earlier of (i) attainment of 95% physical occupancy or (ii) the oneyear anniversary of completion of development. 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. Total Enterprise Value represents the aggregate of the market value of the Company s common stock, the market value of the Company s operating partnership units outstanding (based on the market value of the Company s common stock) and the outstanding principal balance of the Company s debt. 62

63 ADDITIONAL DEFINITIONS & RECONCILIATIONS OF NONGAAP FINANCIAL MEASURES AND OTHER TERMS 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 is as follows: $ in thousands 2017 Net income $ 876,660 Indirect operating expenses, net of corporate income 65,398 Investments and investment management expense 5,936 Expensed acquisition, development and other pursuit costs, net o 2,736 Interest expense, net 199,661 Loss on extinguishment of debt, net 25,472 General and administrative expense 50,814 Joint venture income (70,744) Depreciation expense 584,150 Casualty and impairment (gain) loss, net 6,250 Gain on sale of communities (252,599) Loss (gain) on other real estate transactions 10,907 NOI from real estate assets sold or held for sale (14,573) NOI $ 1,490,068 NOI for Established Communities $ 1,112,472 NOI for Other Stabilized Communities 196,733 NOI for Redevelopment Communities 118,062 NOI for Development Communities (1) 62,801 NOI from real estate assets sold or held for sale 14,573 Total NOI generated by real estate assets $ 1,504,641 NOI on encumbered assets 168,005 NOI on unencumbered assets $ 1,336,636 Unencumbered NOI 89% (1) NOI for Development includes $3,495 of business interruption insurance proceeds related to the Maplewood casualty loss. 63

64 ADDITIONAL DEFINITIONS & RECONCILIATIONS OF NONGAAP FINANCIAL MEASURES AND OTHER TERMS Weighted average initial projected stabilized yield is defined as Projected NOI divided by Total Capital Cost. A reconciliation of the operating margins presented on slide 36 is as follows: $ in thousands Net income $ 876,660 $ 1,033,708 $ 741,733 $ 697,327 $ 352,771 $ 423,562 $ 441,370 Indirect operating expenses, net of corporate income 65,398 61,403 56,973 49,055 41,554 31,911 30,550 Investments and investment management expense 5,936 4,822 4,370 4,485 3,990 6,071 5,126 Expensed acquisition, development and other pursuit costs, net o 2,736 9,922 6,822 (3,717) 45,050 11,350 2,967 Interest expense, net 199, , , , , , ,179 Loss on interest rate contract 51,000 (Gain) Loss on extinguishment of debt, net 25,472 7,075 (26,736) ,921 1,179 1,940 General and administrative expense 50,814 46,076 42,396 41,425 39,573 34,101 29,371 Joint venture income (70,744) (64,962) (70,018) (148,766) 11,154 (20,914) (5,120) Depreciation expense 584, , , , , , ,666 Income tax expense 1,861 9,368 Casualty and impairment (gain) loss, net 6,250 (3,935) (10,542) 1,449 Gain on sale of communities (252,599) (374,623) (125,272) (85,415) (278,471) (146,591) (294,806) Loss (gain) on other real estate transactions 10,907 (10,224) (37,869) Impairment loss 14,052 Income from discontinued operations (310) (16,713) (12,495) 5,658 NOI from real estate assets sold or held for sale (14,573) (44,263) (10,920) (15,199) Gain on acquisition of unconsolidated real estate entity (14,194) NOI $ 1,490,068 $ 1,383,943 $ 1,264,205 $ 1,134,096 $ 997,446 $ 708,375 $ 645,953 NOI for Established Communities $ 1,112,472 $ 1,084,351 $ 973,405 $ 673,156 $ 578,939 $ 531,868 $ 468,563 NOI for Other Stabilized Communities 196, , , , ,159 86,722 89,949 NOI for Development/Redevelopment Communities 180, , , ,879 79,348 89,785 87,441 NOI from real estate assets sold or held for sale 14,573 17,509 Total NOI generated by real estate assets $ 1,504,641 $ 1,428,206 $ 1,264,205 $ 1,134,096 $ 997,446 $ 708,375 $ 645,953 Rental revenue for Established Communities $ 1,574,395 $ 1,541,034 $ 1,382,895 $ 963,917 $ 834,014 $ 763,125 $ 691,170 Operating margin 70.7% 70.4% 70.4% 69.8% 69.4% 69.7% 67.8% 64

65 65 INVESTOR RELATIONS: Jason Reilley