SECOND QUARTER 2016 UPDATE

Transcription

1 AVALON AT ASSEMBLY ROW Somerville, MA AVA Dobro Brooklyn, NY SECOND QUARTER 2016 UPDATE 1 June 2016 EAVES CREEKSIDE Mountain View, CA

2 See Appendix for information about ForwardLooking Statements and definitions of nongaap financial measures and other terms. Statements related to 2016 Outlook and projections in this presentation do not represent a confirmation or reaffirmation of Outlook and projections previously published. 2

3 AGENDA About AvalonBay Apartment Market Fundamentals Growth Strategy Portfolio Management Capital Management 3

4 AGENDA About AvalonBay Apartment Market Fundamentals Growth Strategy Portfolio Management Capital Management 4

5 About AvalonBay ABOUT AVALONBAY An equity REIT in the business of developing, redeveloping, acquiring and managing apartment communities in New England, the New York / New Jersey metro area, the MidAtlantic, the Pacific Northwest, and Northern and Southern California Own or hold a direct or indirect ownership interest in 282 apartment communities (1) containing 83,049 apartment homes Total Enterprise Value of $33 billion 2015 Total Revenue of $1.9 billion S&P 500 Company 2 nd largest multifamily REIT (2) Source: Company reports, SNL Financial. Data as of March 31, 2016, unless otherwise noted. (1) Includes 24 communities under construction and 11 communities under reconstruction. (2) Based of Total Market Capitalization per SNL Financial. 5

6 LONGTERM FOCUS ON ATTRACTIVE COASTAL MARKETS About AvalonBay PACIFIC NORTHWEST 5,458 % OF NOI NORTHERN CALIFORNIA 12,736 NORTHERN CALIFORNIA, 21% SOUTHERN CALIFORNIA, 21% PACIFIC NORTHWEST, 5% NEW ENGLAND, 14% MID ATLANTIC, 15% METRO NY/NJ, 24% 15,448 16,781 13,376 NEW ENGLAND METRO NY/NJ MIDATLANTIC SOUTHERN CALIFORNIA 18,236 Source: Company reports, SNL Financial. Data as of March 31, % of NOI represents each region s % of total NOI for 1Q 2016, including amounts related to communities that have been sold or that are classified as held for sale. Map excludes 1,014 apartment homes in noncore markets. NUMBER OF APARTMENT HOMES 6

7 COMPLETIONS AS A % OF EXISTING STOCK MEDIAN HOME PRICE, $ THOUSANDS 2015 MEDIAN HOUSEHOLD INCOME, $ THOUSANDS 2015 WHICH HAVE STRUCTURAL ADVANTAGES FOR OUR BUSINESS About AvalonBay CONSTRAINTS ON NEW SUPPLY HIGHER COST OF HOMEOWNERSHIP HIGHER HOUSEHOLD INCOMES 1.6% % % % % % % % 100 AVB MARKETS U.S. TOP 50 METRO AVERAGE AVB MARKETS U.S. TOP 50 METRO AVERAGE AVB MARKETS U.S. TOP 50 METRO AVERAGE Source: REIS, Moody s Analytics. 7

8 DEEPLY PENETRATING OUR MARKETS WITH A DIVERSIFIED PRODUCT MIX About AvalonBay GARDEN / TOWNHOME MIDRISE HIGHRISE AVALON ROSELAND ROSELAND, NJ AVA H STREET WASHINGTON, D.C. AVALON WEST CHELSEA NEW YORK, NY EAVES SEAL BEACH SEAL BEACH, CA AVALON ALDERWOOD LYNNWOOD, WA AVA 55 NINTH SAN FRANCSICO, CA 8

9 About AvalonBay AND A MULTIBRAND PORTFOLIO CONSUMER BRAND KEY MESSAGE Live up. Value Living. Where we want, we live. TARGET Comfort Creatures Value Seekers Young Urban Socials AVERAGE RENT $2,420 $1,930 $2,340 Source: Company reports. Data as of March 31,

10 About AvalonBay SIGNIFICANT GROWTH SINCE DOWNTURN Total Market Capitalization: $ 31B 133% Total Market Capitalization: Apartment Homes: $ 14B 55K Apartment Homes: 84K 53% Associates: 2,000 Development Pipeline: $ 3.5B Core FFO / share: $ 3.98 Associates: 3,000 50% Development Pipeline: $ 6.3B 77% Core FFO / share: $ % Source: Company reports. 10

11 1.4% 5.8% 6.8% 8.5% 11.7% 11.3% About AvalonBay CONTRIBUTING TO LONGTERM OUTPERFORMANCE 14% 10YEAR COMPOUND ANNUAL GROWTH RATE % 10% 8% 6% 4% 2% TOTAL SHAREHOLDER RETURN NET ASSET VALUE PER SHARE DIVIDEND PER SHARE AVALONBAY MULTIFAMILY SECTOR WEIGHTED AVERAGE (1) Source: SNL Financial. (1) Multifamily Sector Weighted Average includes AIV, CPT, EQR, ESS, MAA, PPS and UDR, and is weighted based on Total Market Capitalization per SNL Financial. 11

12 3.8% 7.5% 7.1% 9.0% PRIMARILY AS A RESULT OF OUR CAPITAL ALLOCATION TRACK RECORD About AvalonBay ANNUALIZED CORE FFO PER SHARE GROWTH PROJECTED CORE FFO PER SHARE GROWTH % 8% 10% 8% % 6% 4% 4% 2% 2% AVALONBAY MULTIFAMILY SECTOR WEIGHTED AVERAGE AVALONBAY MULTIFAMILY SECTOR WEIGHTED AVERAGE (1) (1,2) Source: SNL Financial. (1) Multifamily Sector Weighted Average includes AIV, CPT, EQR, ESS, MAA, PPS and UDR, and is weighted based on Total Market Capitalization per SNL Financial as of December 31, (2) Multifamily Sector Weighted Average excludes EQR due to planned disposition activity. 12

13 8% DIVIDEND INCREASE CONTINUES A 20+ YEAR HISTORY OF STRONG DIVIDEND GROWTH About AvalonBay ANNUAL COMMON DIVIDENDS PAID INDEXED TO 100 IN YEAR CAGR = 5.5% % SINCE TRENDLINE Source: Company reports. 13

14 AGENDA About AvalonBay Apartment Market Fundamentals Growth Strategy Portfolio Management Capital Management 14

15 ECONOMIC CONDITIONS PROJECTED TO BE STABLE IN 2016; CONSUMER TO BENEFIT FROM TIGHTENING LABOR MARKET Apartment Market Fundamentals GDP Continued moderate growth expected, though we may have reached peak growth for the cycle. INDUSTRY Profits At 4% annual growth, NABE projects corporate profits will continue at the same pace as Hiring Following best 2 years since late 1990s, further solid job growth is expected. Investment Firms will need to invest to grow and maintain margins, but capital may be more expensive. Trade Export demand from the developing world has weakened along with commodity prices. CONSUMER Income The labor market is tight and talent is hard to find. We expect healthy wage growth in Spending With higher wages, we should see higher consumption. Wealth Paychecks will be larger, but the broader equity market has been challenged by slowing global growth. Debt Expect to see rising mortgage debt with stronger sales and higher rates. Small gains in consumer debt. GOVERNMENT Federal Spending Monetary Policy State & Local 2016 ECONOMIC OUTLOOK Congress has loosened 2013's budget sequestration and its spending constraints. The Fed is expected to continue tightening, albeit at an uncertain pace. State & local payrolls and capital projects are proceeding inline with higher tax receipts. Source: National Association of Business Economics ( NABE ), Moody s Analytics, AVB Market Research Group. 15

16 JOB GROWTH EXPECTED TO REMAIN HEALTHY ACROSS AVB MARKETS; MODERATING IN WEST COAST TECH REGIONS Apartment Market Fundamentals 4.0% ACTUAL & PROJECTED JOB GROWTH 4Q / 4Q % CHANGE 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% U.S. AVB MARKETS NEW ENGLAND METRO NY/NJ MIDATLANTIC PACIFIC NORTHWEST NORTHERN CALIFORNIA SOUTHERN CALIFORNIA PROJECTION Source: National Association of Business Economics, Moody s Analytics, AVB Market Research Group. 16

17 STRONGER PERSONAL INCOME GROWTH SHOULD SUPPORT RENT GROWTH Apartment Market Fundamentals 8% 2015 & 2016 TOTAL PERSONAL INCOME GROWTH JOB & WAGE GROWTH 7% 6% 5% 4% 3% 2% 1% U.S AVB MARKETS NEW ENGLAND METRO NY/NJ MID ATLANTIC PACIFIC NORTHWEST NORTHERN CALIFORNIA SOUTHERN CALIFORNIA U.S. AVB MARKETS NEW ENGLAND METRO BY/NJ MIDATLANTIC PACIFIC NORTHWESTNORTHERN CALIFORNIA SOUTHERN CALIFORNIA JOB GROWTH WAGE GROWTH Source: National Association of Business Economics, Moody s Analytics, AVB Market Research Group. 17

18 DELIVERIES REMAIN ELEVATED IN 2016; GREATEST IN SEATTLE, MIDATLANTIC & NORTHERN CALIFORNIA 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% ACTUAL & PROJECTED NEW APARTMENT COMPLETIONS AS A % OF EXISTING APARTMENT INVENTORY Apartment Market Fundamentals AVB MARKETS NEW ENGLAND METRO NY/NJ MIDATLANTIC PACIFIC NORTHWEST PROJECTION 2017 PROJECTION NORTHERN CALIFORNIA SOUTHERN CALIFORNIA Source: AVB Market Research Group. 18

19 % CHANGE MILLIONS MILLIONS CURRENT CYCLE PROVING TO BE DURABLE AND SIMILAR TO THE 90S Apartment Market Fundamentals (5) U.S. CUMULATIVE JOB CREATION Q1 Q5 Q9 Q13 Q17 Q21 Q25 Q29 Q33 Q U.S. CUMULATIVE MULTIFAMILY STARTS Q1 Q5 Q9 Q13 Q17 Q21 Q25 Q29 Q33 Q37 60% U.S. CUMULATIVE RENT GROWTH 53% 40% 20% Q1 Q5 Q9 Q13 Q17 Q21 Q25 Q29 Q33 Q37 23% 2Q Q Q 2009 CURRENT Source: U.S. Bureau of Labor Statistics, U.S. Census Bureau, REIS. 19

20 AGENDA About AvalonBay Apartment Market Fundamentals Growth Strategy Portfolio Management Capital Management 20

21 Growth Strategy MULTIPLE GROWTH PLATFORMS Development Growing the portfolio Acquisitions Dispositions Shaping the portfolio Redevelopment Positioning the portfolio Mergers & Acquisitions Transforming the portfolio 21

22 $ BILLIONS DEVELOPMENT WILL CONTINUE TO BE A DRIVER OF GROWTH 3.5 DEVELOPMENT ACTIVITY UNDERWAY AT YEAREND & AS A % OF TOTAL ENTERPRISE VALUE Growth Strategy 25% % TARGET % OF TOTAL ENTERPRISE VALUE RANGE 15% 10% 5% PROJECTED DEVELOPMENT VOLUME UNDERWAY AT YEAREND % OF TOTAL ENTERPRISE VALUE (RIGHT AXIS) Source: Company reports. See Appendix for defined terms. (1) Assumes Total Enterprise Value as of December 31, (1) 22

23 $ MILLIONS WTD. AVG. YIELD CAP RATE Growth Strategy AND MARGINS REMAIN HEALTHY 1,400 YIELDS ON DEVELOPMENT COMPLETIONS VERSUS ESTIMATED MARKET CAP RATES & PROFIT MARGINS 8% 1,200 1, % 7.3% 7.1% 34% 32% 4.9% 5.0% 4.9% 31% 6.7% 4.4% 34% 7% 6% 5% 4% 3% 400 2% 200 1% DEVELOPMENT COMPLETED WEIGHTED AVERAGE DEVELOPMENT COMPLETION YIELD (RIGHT AXIS) WEIGHTED AVERAGE DEVELOPMENT COMPLETION CAPITALIZATION ( CAP ) RATE (RIGHT AXIS) PROFIT MARGIN Source: Company reports. See Appendix for defined terms. Weighted average based on Total Capital Cost. (1) Reflects Management s estimate at the time of completion and will vary based on geographic mix and product type. (1) 23

24 CURRENT LEASEUP COMMUNITIES DELIVERING STRONG NAV GROWTH Growth Strategy CURRENT LEASEUP PERFORMANCE CURRENT PROJECTION ORIGINAL PROJECTION Weighted Average Rent per Home $ 2,780 $ 2,680 $ % Weighted Average Initial Projected Stabilized Yield 6.2% 5.9% 30 bps AVALON GLENDORA Glendora, CA AVALON BLOOMFIELD STATION Bloomfield, NJ 24 Source: Company reports. Current leaseup performance includes 8 communities under construction and in leaseup during 1Q 2016.

25 DEVELOPMENT PIPELINE DIVERSIFIED ACROSS REGIONS SUBMARKET & PRODUCT TYPE Growth Strategy UNDER CONSTRUCTION $ 2.7B DEVELOPMENT RIGHTS PIPELINE $3.7B NORTHERN CALIFORNIA, 6% PACIFIC NORTHWEST, 13% NEW ENGLAND, 15% NEW PACIFIC ENGLAND, NORTHWEST, 13% 10% SOUTHERN CALIFORNIA, 16% MID ATLANTIC, 13% METRO NY/NJ, 37% NORTHERN CALIFORNIA, 13% SOUTHERN CALIFORNIA, 9% MID ATLANTIC, 7% METRO NY/NJ, 47% GARDEN, 11% GARDEN, 12% URBAN, 49% SUBURBAN, 51% HIGHRISE, 34% MIDRISE, 54% URBAN, 40% SUBURBAN, 60% HIGHRISE, 31% MIDRISE, 57% Source: Company reports. As of March 31, %s based on projected Total Capital Cost. 25

26 OVER THE LAST 20 YEARS INVESTMENT RETURNS HAVE BEEN COMPELLING IN BOTH SUBURBAN AND URBAN SUBMARKETS AVB REALIZED & ESTIMATED UNREALIZED UNLEVERED INTERNAL RATES OF RETURN INVESTMENTS COMPLETED THROUGH 1Q 2014 Growth Strategy 15% PACIFIC NORTHWEST NEW ENGLAND 10% 15% 5% 10.1% 11.5% NORTHERN CALIFORNIA 15% 10% 5% 14.3% 12.6% SOUTHERN CALIFORNIA 15% 10% 5% TOTAL AVB 13.1% 13.3% 15% 10% 5% METRO NEW YORK/ NEW JERSEY 12.9% 14.4% 15% 10% 5% 10% 5% 13.0% 12.4% MIDATLANTIC 14.2% 13.6% 15% 10% 5% 11.5% 11.6% See Appendix for explanation of calculations. SUBURBAN URBAN 26

27 AGENDA About AvalonBay Apartment Market Fundamentals Growth Strategy Portfolio Management Capital Management 27

28 Portfolio Management HIGHQUALITY PORTFOLIO Average Rental Rate: $2,373 (1) Economic Occupancy: 95.6% (1) Average Age of Portfolio: 19 years AVALON MORRISON PARK SAN JOSE, CA AVALON MOSAIC Source: Company reports. FAIRFAX, VA Data as of March 31, Apartments depicted are model units. (1) For Established Communities as of January 1, AVA LITTLE TOKYO LOS ANGELES, CA AVALON WEST CHELSEA NEW YORK, NY 28

29 FUNDAMENTALS CONTINUE TO SUPPORT HEALTHY REVENUE GROWTH; DIFFERENCE BETWEEN EAST & WEST NARROWING Portfolio Management 10% FULL YEAR SAMESTORE RENTAL REVENUE OUTLOOK 8% 6% HIGHEND 5.5% 4% LOWEND 4.25% 2% AVALONBAY NEW ENGLAND METRO NY/NJ MIDATLANTIC PACIFIC NORTHWEST NORTHERN CALIFORNIA SOUTHERN CALIFORNIA 2016 PROJECTED High Low Close 2015 ACTUAL Source: Company reports. 29

30 $ MILLIONS REPOSITIONING THE PORTFOLIO THROUGH REDEVELOPMENT REDEVELOPMENT START VOLUME 250 BEFORE AVALON TYSONS CORNER TYSONS CORNER, VA Portfolio Management PROJECTED Source: Company reports. AFTER 30

31 Portfolio Management EXCEPTIONAL REPUTATION CUSTOMER SATISFACTION #1 ONLINE REPUTATION 18 NET PROMOTER S C O R E ( N P S ) +4 Points from 2014 Score 84% R E S I D E N T SATISFACTION vs. 77% : 2015 Kingsley Index ASSOCIATE ENGAGEMENT 4.1 T O P 10% G L A S S D O O R R A T I N G #1 Residential REIT #2 among DC based companies IN ASSOCIATE ENGAGEMENT IBM Kenexa Survey CORPORATE RESPONSIBILITY R E S I D E N T I A L S E C T O R #2 United States #3 /28 /59 International COMMUNITY AWARDS PILLARS OF THE INDUSTRY AWARDS BEST GARDEN APT COMMUNITY Avalon Baker Ranch PROJECT OF THE YEAR : MIDRISE PODIUM OR WRAP MERIT WINNER AVA Little Tokyo 31 W I N N E R : RESIDENTIAL CATEGORY EXCELLENCE IN CONSTRUCTION MultiHigh Rise : Avalon Mosaic Residential : Avalon Hayes Valley 31

32 AGENDA About AvalonBay Apartment Market Fundamentals Growth Strategy Portfolio Management Capital Management 32

33 Capital Management INTEGRATED CAPITAL MANAGEMENT GUIDING PRINCIPLES Match Fund New Commitments Manage Liquidity and Borrowing Capacity Optimize Sourcing of Capital 33

34 $ BILLIONS Capital Management DEVELOPMENT UNDERWAY 80% MATCHFUNDED 4 DEVELOPMENT ACTIVITY UNDERWAY VERSUS AVAILABLE CAPITAL SOURCES INCLUDES NONSTABILIZED DEVELOPMENT COMPLETIONS AS OF MARCH 31, $ 3.25B CASH & CASH EQUIVALENTS, $ 0.10B REMAINING TO FUND, $ 0.63B PROJECTED CASH FROM OPERATIONS, NET, $ 0.35B 1 SPENTTODATE, $ 2.18B Source: Company reports. PROJECTED TOTAL CAPITAL COST SOURCES 34

35 4.76x 4.81x 4.87x 5.0x WHICH ENHANCES GROWTH WHILE STRENGTHENING CREDIT PROFILE Capital Management PROJECTED NET DEBTTOCORE EBITDA (MILLIONS) 1Q 2016 Core EBITDA, annualized $ 1,246 A Less: Net Operating Income from nonstabilizied (1) Development Communities, annualized (20) B 5.1x 5.0x NET DEBTTOCORE EBITDA SENSITIVITY Total $ 1,226 C = A + B Total Development underway (including nonstabilized Development) 3,249 Weighted Average Projected NOI as a % of Total Capital Cost 6.3% $ D E 4.9x 4.8x PROJECTED CORE EBITDA UPON STABILIZATION Total $ 205 F = D x E $ 1,431 G = C + F 1Q 2016 Net debt $ 6,261 H (2) Remaining to fund (refer to page 33) 626 I 4.7x 4.6x PROJECTED NET DEBT $ 6,887 J = H + I PROJECTED NET DEBTTOCORE EBITDA 4.8x K = J / G 4.5x 1Q % 6.3% 6.8% ACTUAL Source: Company reports. (1) See footnote 4 on Attachment 7 of the Company s First Quarter 2016 Earnings Supplemental. (2) Based on a hypothetical funding strategy of financing remaining to fund with 100% debt. Actual sources of funding may vary. AT ESTIMATED YIELDS 35

36 Capital Management BALANCE SHEET WELLPOSITIONED TO PURSUE FUTURE INVESTMENT OPPORTUNITIES 80% of NOI is unencumbered TOTAL EQUITY 80% 5.0x Net DebttoCore EBITDA TOTAL DEBT 20% 7.2x Interest Coverage Strong Credit Ratings UNSECURED FIXED 55% S&P: A, Stable Outlook Moody s: Baa1, Positive Outlook OTHER 8% TAXEXEMPT VARIABLE 15% CONVENTIONAL FIXED 22% Source: Company reports. Data as of March 31,

37 FORWARDLOOKING STATEMENTS This presentation contains projections and other forwardlooking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of These forwardlooking statements, which you can identify by the Company's use of words such as "projected" 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 presentation 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 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: our expectations and assumptions as of the date of this filing regarding the outcome of investigations and/or legal proceedings resulting from the Edgewater casualty loss, as well as the ultimate cost and timing of replacing the Edgewater building and achieving stabilized occupancy in the event the Company chooses to rebuild this community, are subject to change and could materially affect our current expectations regarding the impact of the casualty loss on our business, financial condition and results of operations; we may fail to secure development opportunities due to an inability to reach agreements with thirdparties 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 Fund II, the U.S. Fund, the AC JV or the REIT vehicles that are used with each respective joint venture; and we may be unsuccessful in managing changes in our portfolio composition. 37

38 DEFINITIONS & RECONCILIATIONS OF NONGAAP FINANCIAL MEASURES AND OTHER TERMS A reconciliation of FFO to Net Income attributable to common stockholders for the years 2015, 2010 and 2005 is as follows (dollars in thousands): Full Year 2015 Full Year 2010 Full Year 2005 Net income attributable to common stockholders $ 742,038 $ 175,331 $ 310,468 Dividends attributable to preferred stock (8,700) Depreciation real estate assets, including discontinued operations and joint venture adjustments 486, , ,221 Distributions to noncontrolling interests, including discontinued operations Gain on sale of unconsolidated entities holding previously depreciated real estate assets (33,580) Gain on sale of previously depreciated real estate assets (115,625) (74,074) (195,287) Minority interest, including discontinued operations 1,363 Impairment due to casualty loss 4,195 FFO attributable to common stockholders $ 1,083,085 $ 338,353 $ 271,096 Average shares outstanding diluted 134,593,177 84,632,869 74,759,318 Earnings per share diluted $ 5.51 $ 2.07 $ 4.05 FFO per common share diluted $ 8.05 $ 4.00 $

39 DEFINITIONS & RECONCILIATIONS OF NONGAAP FINANCIAL MEASURES AND OTHER TERMS Core FFO is the Company s FFO as adjusted for the nonroutine items outlined in the following table (dollars in thousands): Full Year 2015 Full Year 2010 Full Year 2005 FFO, actual $ 1,083,085 $ 338,353 $ 271,096 NonRoutine Items Joint venture gains and costs (9,059) Acquisition costs 3,806 Income Taxes 1,103 Casualty and impairment gain, net (16,247) Compensation plan redesign and Severance related costs 1,999 (1,550) 2,300 Early extinguishment of consolidated debt (26,736) Writeoff of Development Rights and retail assets 1,838 Gains/Losses on land sales (9,647) (4,479) Lost NOI from casualty losses 7,862 Joint Venture Promote (21,969) Federal Excise Tax (235) Legal settlement proceeds, net (927) 1,500 Severe weather costs 672 Investment management fund transaction costs, net 811 Rent.com/Constellation writedown 6,000 Land Lease Adjustment 10,677 BXP Payment (1,500) Core FFO $ 1,016,035 $ 337,124 $ 273,595 Core FFO per common share diluted $ 7.55 $ 3.98 $

40 DEFINITIONS & RECONCILIATIONS OF NONGAAP FINANCIAL MEASURES AND OTHER TERMS Projected FFO as provided within the earnings release in the Company s outlook, is calculated on a basis consistent with historical FFO, and is therefore considered to be an appropriate supplemental measure to project Net Income from projected operating performance. A reconciliation of the ranges provided for projected EPS (diluted) and corresponding reconciliation of the ranges for Projected FFO per share to the ranges for Core FFO per share are as follows: Low range High range Projected EPS (diluted) Full Year 2016 $ 6.86 $ 7.26 Projected depreciation (real estate related) Projected gain on sale of operating communities (2.45) (2.65) Projected FFO per share (diluted) Full Year Joint venture costs (1) Casualty and impairment gain, net (0.06) (0.06) Lost NOI from casualty losses Abandoned pursuits Acquisition Costs Business interruption insurance proceeds (0.15) (0.15) Projected Core FFO per share (diluted) Full Year 2016 $ 8.03 $ 8.43 (1) Amounts are composed primarily of the Company's portion of yield maintenance charges incurred for the early repayment of debt. 40

41 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 either outstanding secured debt or land leases (excluding land leases with purchase options that were put in place for governmental incentives or tax abatements) as a percentage of total NOI generated by real estate assets. The Company believes that current and prospective unsecured creditors of the Company view Unencumbered NOI as one indication of the borrowing capacity of the Company. Therefore, when reviewed together with the Company's Interest Coverage, EBITDA and cash flow from operations, the Company believes that investors and creditors view Unencumbered NOI as a useful supplemental measure for determining the financial flexibility of an entity. A calculation of Unencumbered NOI for the three months ended March 31, 2016 is as follows (dollars in thousands): 1Q 2016 NOI NOI for Established Communities $ 264,131 NOI for Other Stabilized Communities 59,308 NOI for Development/Redevelopment Communities 35,327 NOI for discontinued operations NOI from real estate assets sold or held for sale, not classified as discontinued operations 721 Total NOI generated by real estate assets 359,487 NOI on encumbered assets 72,435 NOI on unencumbered assets $ 287,052 Unencumbered NOI 80 % 41

42 DEFINITIONS & RECONCILIATIONS OF NONGAAP FINANCIAL MEASURES AND OTHER TERMS Interest Coverage, also referred to as Fixed Charge Coverage, is calculated by the Company as EBITDA, excluding joint venture income or loss, divided by the sum of interest expense, net, and preferred dividends. Interest Coverage is presented by the Company because it provides rating agencies and investors an additional means of comparing our ability to service debt obligations to that of other companies. EBITDA is defined by the Company as net income or loss attributable to the Company before interest income and expense, income taxes, depreciation and amortization. A reconciliation of EBITDA, as adjusted, and a calculation of Interest Coverage for the first quarter of 2016 are as follows (dollars in thousands): Net income attributable to common stockholders $ 237,931 Interest expense, net 43,410 Income tax expense 37 Depreciation expense 127,216 EBITDA $ 408,594 NOI from discontinued operations and real estate assets sold or held for sale, not classified as discontinued operations (721) Gain on sale of communities (51,430) EBITDA after disposition activity $ 356,443 Joint venture income (27,969) Casualty and impairment loss (gain), net (2,202) Lost NOI from casualty losses 1,870 Business interruption insurance proceeds (20,334) Other noncore adjustments (1) 3,735 Core EBITDA $ 311,543 Interest expense, net $ 43,410 Interest Coverage 7.2 times (1) Refer to the Core FFO definition included in this release. 42

43 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 first quarter 2016 Core EBITDA, as adjusted. Total debt principal (1) $ 6,528,834 Cash and cash in escrow (267,902) Net debt $ 6,260,932 Core EBITDA $ 311,543 Core EBITDA, annualized $ 1, Net DebttoCore EBITDA 5.0 times (1) Balance at March 31, 2016 excludes $7,310 of debt discount and $20,836 of deferred financing costs as reflected in unsecured notes, net, and $16,652 of debt premium and $14,760 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. 43

44 ADDITIONAL DEFINITIONS & RECONCILIATIONS OF NONGAAP FINANCIAL MEASURES AND OTHER TERMS Development Completion Yield represents the NOI or Projected NOI of a development community upon completion and Stabilized Operations expressed as a percentage of the Total Capital Cost of the community. Development Rights are development opportunities in the early phase of the development process for which the Company either has an option to acquire land or enter into a leasehold interest, for which the Company is the buyer under a longterm conditional contract to purchase land, where the Company controls the land through a ground lease or owns land to develop a new community, or where the Company is the designated developer in a publicprivate partnership. The Company capitalizes related predevelopment costs incurred in pursuit of new developments for which future development is probable. Estimated Development Completion Market Capitalization ( Cap ) Rate is Management s estimate of the Initial Year Market Capitalization for each development completion in a given year. Initial Year Market Capitalization Rate is the Company s projected NOI of a single community for the first 12 months of operations (assuming no repositioning) after acquisition or disposition, less estimates for nonroutine allowance of approximately $300 $500 per apartment home, divided by the gross acquisition or sale price for the community. Projected NOI, as referred to in this paragraph represents management s estimate of projected rental revenue minus projected Direct Property Operating Expenses. Market Value of Development Completions is the NOI or the Projected NOI of a development community upon completion and Stabilized Operations divided by the Estimated Development Completion Market Capitalization ( Cap ) Rate. Profit margin is the estimated Market Value of Development Completions in a given year less the Total Capital Cost of development completions in the given year, the result is then divided by the Market Value of Development Completions. Stabilized Operations is defined as the earlier of (i) attainment of 95% physical occupancy or (ii) the oneyear anniversary of completion of development. 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. Glassdoor Residential REIT sector includes AVB, AIV, CPT, ESS, EQR, MAA, PPS and UDR. 44

45 ADDITIONAL DEFINITIONS & RECONCILIATIONS OF NONGAAP FINANCIAL MEASURES AND OTHER TERMS The Unleveraged Internal Rates of Return (IRR) shown on slide 26 are internal rates of return calculated by the Company for developed properties based on the following amounts related to such properties: (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) 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. In the case of properties still owned by the Company, for purposes of these calculations the Company has determined an assumed sale price net of selling costs as of March 31, In the case of communities owned through joint ventures, the full value of the property s cash flows 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 propertylevel expenses. Excluded from these calculations are communities located in markets where the Company no longer operates and certain communities located in noncore markets (Texas). The calculation of Unleveraged IRR does not include an adjustment for the Company s general and administrative expense, interest expense, or corporatelevel property management and other indirect operating expenses. In addition, the full cash flows 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 development, 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 slide are, by the nature of their calculation, weighted based the amount and timing of all cash flows over the investment period for each respective community, including net sales proceeds. The Unleveraged IRRs cited are presented to demonstrate the Company s analysis regarding the relative returns earned by the Company in different times, based on the Company s historical experience over 20 years in building, managing and selling communities and determined through a consistent methodology to calculate Unleveraged IRRs. For slide 26, 295 communities are included in the calculations, including 208 still owned in full or in part by the Company. The weighted average holding period of these 295 communities (weighted according to undepreciated capital cost) is 9.5 years. 45