AVALONBAY COMMUNITIES INC - FORM 8-K - EX-99.1

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8-K - FORM 8-K - AVALONBAY COMMUNITIES INC	w82534e8vk.htm
EX-99.2 - EX-99.2 - AVALONBAY COMMUNITIES INC	w82534exv99w2.htm

Exhibit 99.1

For Immediate News Release
April 27, 2011

AVALONBAY COMMUNITIES, INC. ANNOUNCES
FIRST QUARTER 2011 OPERATING RESULTS

(Arlington, VA) AvalonBay Communities, Inc. (NYSE: AVB) (the “Company”) reported today that Net Income Attributable to Common Stockholders (“Net Income”) for the quarter ended March 31, 2011 was $30,341,000. This resulted in Earnings per Share — diluted (“EPS”) of $0.35 for the quarter ended March 31, 2011, compared to EPS of $0.88 for the comparable period of 2010, a decrease of 60.2%.

The decrease in EPS for the quarter ended March 31, 2011 from the prior year period is due primarily to a decrease in real estate sales and related gains with no comparable activity in 2011, offset partially by an increase in NOI from communities.

Funds from Operations attributable to common stockholders — diluted (“FFO”) per share for the quarter ended March 31, 2011 increased 12.5% to $1.08 from $0.96 for the comparable period of 2010.

The Company’s FFO and EPS for the quarter ended March 31, 2011 include the recognition of a one-time benefit of approximately $0.03 per share for interest income associated with escrow funds for certain tax exempt financings. FFO and EPS for the quarter ended March 31, 2010 include approximately $0.01 per share for costs related to the severe weather experienced by the East Coast communities in the first quarter of 2010. Adjusting for these non-routine items, FFO per share for the three months ended March 31, 2011 would have increased by 8.2% from the prior year period.

The following table compares the Company’s first quarter 2011 actual results to its February 2011 outlook:

First Quarter 2011 Results
Comparison to February 2011 Outlook


	Per Share
FFO 1Q 2011 — February 2011 Outlook (1)	$	1.02
Community NOI		0.03
Non-routine items — interest income		0.03

FFO 1Q 2011 Reported Results	$	1.08


(1)		Represents the mid-point of the Company’s 1Q 2011 Outlook.

Commenting on the Company’s results, Bryce Blair, Chairman and CEO, said, “Our operating results reflect strengthening apartment fundamentals that accelerated during the quarter. Job growth, particularly among younger workers, is driving higher rental demand while new supply remains muted. We expect fundamentals will continue to accelerate during the year such that FFO per share for the year will meet or exceed the high end of the range we provided in February.”

Operating Results for the Quarter Ended March 31, 2011 Compared to the Prior Year Period

For the Company, including discontinued operations, total revenue increased by $17,019,000, or 7.8% to $235,808,000. For Established Communities, rental revenue increased 3.7%, all attributable to an increase in Average Rental Rates. As a result, total revenue for Established Communities increased $6,177,000 to $171,155,000. Operating expenses for Established Communities decreased $53,000, or 0.1%, to $56,990,000. Accordingly, Net Operating Income (“NOI”) for Established Communities increased by 5.8%, or $6,230,000, to $114,165,000.

The following table reflects the percentage changes in rental revenue, operating expenses and NOI for Established Communities from the first quarter of 2011 compared to the first quarter of 2010:


Q1 2011 Compared to Q1 2010
	Rental			Operating						% of
	Revenue			Expenses			NOI			NOI (1)
New England		4.1	%		0.2	%		6.7	%		19.9	%
Metro NY/NJ		4.0	%		1.1	%		5.5	%		27.8	%
Mid-Atlantic/Midwest		4.4	%		(4.1	%)		8.3	%		16.3	%
Pacific NW		2.1	%		5.0	%		0.8	%		4.3	%
No. California		4.1	%		(1.2	%)		6.5	%		19.9	%
So. California		1.6	%		0.9	%		1.9	%		11.8	%

Total		3.7	%		(0.1	%)		5.8	%		100.0	%


(1)		Total represents each region’s % of total NOI from the Company, including discontinued operations.

Development Activity

The Company had no development starts during the first quarter of 2011.

During the first quarter of 2011, the Company completed three communities containing 888 apartment homes for a Total Capital Cost of $234,400,000:

•

Avalon West Long Branch, located in West Long Branch, NJ, a garden-style community containing 180 apartment homes was completed for a Total Capital Cost of $25,800,000;

•

Avalon Towers Bellevue, located in Bellevue, WA, a high-rise community containing 397 apartment homes was completed for a Total Capital Cost of $124,500,000; and

•

Avalon Norwalk, located in Norwalk, CT, a mid-rise community containing 311 apartment homes was completed for a Total Capital Cost of $84,100,000.

Acquisition/Disposition Activity

In April 2011, the Company completed an exchange of assets with UDR, Inc. (“UDR”). The transaction included exchanging a portfolio of three communities and a parcel of land owned by the Company for a portfolio of six UDR communities and $26,000,000 in cash. The Company’s portfolio consisted of two properties and a small land parcel located in metropolitan Boston and one property located in San Francisco. The UDR portfolio is located in Southern California (Los Angeles, Orange County and San Diego).

As part of the transaction, the Company assumed a $55,400,000 fixed-rate mortgage loan with a 5.24% interest rate and a maturity date of June 2013. In exchange, the Company relinquished a $55,800,000 mortgage loan with a fixed rate of 5.86% that matures in May 2019. Excluding one-time transaction costs, the Company expects the asset exchange will be modestly accretive to FFO per share in 2011.

Also in April 2011, the Company acquired Fairfax Towers for its wholly-owned portfolio. Fairfax Towers is a high-rise community consisting of 415 apartment homes, located in Falls Church, VA, and was acquired for a purchase price of $89,200,000. In conjunction with this acquisition, the Company assumed the existing 4.75% fixed-rate mortgage loan of $44,044,000, which matures in August 2015.

Transaction costs for the asset exchange and acquisition of Fairfax Towers will be approximately $1,000,000. These one-time charges will be reflected in the Company’s second quarter 2011 earnings.

Investment and Investment Management Fund Activity

During the first quarter of 2011, AvalonBay Value Added Fund II, L.P. (“Fund II”, a private, discretionary real estate investment vehicle in which the Company holds an equity interest of approximately 31%) acquired Waterstone Carlsbad, a garden-style community consisting of 448 apartment homes located in Carlsbad (San Diego County), CA. The community was acquired for a purchase price of $78,100,000, or approximately $174,000 per apartment home.

Also in the first quarter of 2011, the Company purchased its joint venture partner’s interest in the venture that owns Avalon at Rock Spring, which is subject to a ground lease. Avalon at Rock Spring, a 386 apartment home community located in Rockville, MD, was developed through the joint venture in 2003. The Company purchased the partner’s interest in the joint venture for a gross purchase price of approximately $6,570,000. The Company plans to sell Avalon at Rock Spring during the second half of 2011. The Company expects to recognize an increase in 2011 operating results subsequent to disposition of the community of approximately $0.10 per share, as discussed in its February 2011 outlook.

Financing, Liquidity and Balance Sheet Statistics

At March 31, 2011, the Company had no amounts outstanding under its $1,000,000,000 unsecured credit facility.

At March 31, 2011, the Company had $476,932,000 in unrestricted cash and cash in escrow. The cash in escrow is available for development activity and includes $93,440,000 in bond proceeds related to an existing Development Right.

Unencumbered NOI as a percentage of total NOI generated by real estate assets for the quarter ended March 31, 2011 was 69%. Interest Coverage for the first quarter of 2011 was 3.1 times.

New Financing Activity

In November 2010, the Company commenced a new continuous equity offering program, under which the Company can issue up to $500,000,000 of common stock during a 36-month period. During the three months ended March 31, 2011, the Company sold 1,247,910 shares at an average price of $115.99 per share, for net proceeds of $142,569,000. No shares have been sold subsequent to March 31, 2011.

Debt Repayment Activity

In March 2011, the Company repaid a variable rate secured mortgage note in the amount of $28,785,000 in accordance with its scheduled maturity date.

Capital Markets Activity

In April 2011, the Company entered into $430,000,000 of forward starting interest rate swaps where the Company has agreed to pay a fixed rate of interest in exchange for a floating rate of interest at a future date. These swaps were transacted to reduce the Company’s exposure to fluctuations in interest rates on future debt issuances, and are not expected to impact the Company’s 2011 operating results.

Second Quarter 2011 Financial Outlook

First Quarter results were better than anticipated and the Company’s operating results are now expected to continue to improve at a faster pace than originally assumed in its 2011 financial outlook provided in February 2011. The Company now expects full year 2011 FFO per share will meet or exceed the high end of the range provided in the February outlook. The Company will provide revised ranges for the full year in early June 2011.

For the second quarter of 2011, the Company expects EPS in the range of $0.47 to $0.51 and expects Projected FFO per share in the range of $1.06 to $1.10. These expected results do not include the impact of expensed acquisition costs discussed earlier in this release.

The Company expects to release its second quarter 2011 earnings on July 27, 2011 after the market closes. The Company expects to hold a conference call on July 28, 2011 at 1:00 PM ET to discuss the second quarter 2011 results.

Second Quarter 2011 Conference/Event Schedule

The Company is scheduled to participate in the NAREIT Institutional Investor Forum in New York, NY, from June 7-9, 2011. The Company will present and conduct a question and answer session at the conference. Management may discuss the Company’s current operating environment; operating trends; development, redevelopment, disposition and acquisition activity; financial outlook; portfolio strategy and other business and financial matters affecting the Company. Details on how to access a webcast of the Company’s presentation will be available in advance of the conference event at the Company’s website at http://www.avalonbay.com/events.

Other Matters

The Company will hold a conference call on April 28, 2011 at 1:00 PM ET to review and answer questions about this release, its first quarter 2011 results, the Attachments (described below) and related matters. To participate on the call, dial 1-877-510-2397 domestically and 1-763-416-6924 internationally.

To hear a replay of the call, which will be available from April 28, 2011 at 6:00 PM ET to May 5, 2011 at 11:59 PM ET, dial 1-800-642-1687 domestically and 1-706-645-9291 internationally, and use Access Code: 56294779. A webcast of the conference call will also be available at http://www.avalonbay.com/earnings, and an on-line playback of the webcast will be available for at least 30 days following the call.

The Company produces Earnings Release Attachments (the “Attachments”) that provide detailed information regarding operating, development, redevelopment, disposition and acquisition activity. These Attachments are considered a part of this earnings release and are available in full with this earnings release via the Company’s website at http://www.avalonbay.com/earnings. To receive future press releases via e-mail, please submit a request through http://www.avalonbay.com/email.

About AvalonBay Communities, Inc.

As of March 31, 2011, the Company owned or held a direct or indirect ownership interest in 187 apartment communities containing 55,027 apartment homes in ten states and the District of Columbia, of which 11 communities were under construction and nine communities were under reconstruction. The Company is an equity REIT in the business of developing, redeveloping, acquiring and managing apartment communities in high barrier-to-entry markets of the United States. More information may be found on the Company’s website at http://www.avalonbay.com. For additional information, please contact John Christie, Senior Director of Investor Relations and Research at 1-703-317-4747 or Thomas J. Sargeant, Chief Financial Officer at 1-703-317-4635.

Forward-Looking Statements

This release, including its Attachments, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. You can identify these forward-looking statements by the Company’s use of words such as “expects,” “plans,” “estimates,” “anticipates,” “projects,” “intends,” “believes,” “outlook” and similar expressions that do not relate to historical matters. Actual results may differ materially from those expressed or implied by the forward-looking statements as a result of risks and uncertainties, which include the following: we may abandon development or redevelopment opportunities for which we have already incurred costs; adverse capital and credit market conditions may affect our access to various sources of capital and/or cost of capital, which may affect our business activities, earnings and common stock price, among other things; changes in local employment conditions, demand for apartment homes, supply of competitive housing products, and other economic conditions may result in lower than expected occupancy and/or rental rates and adversely affect the profitability of our communities; delays in completing development, redevelopment and/or lease-up may result in increased financing and construction costs and may delay and/or reduce the profitability of a community; debt and/or equity

financing for development, redevelopment or acquisitions of communities may not be available or may not be available on favorable terms; we may be unable to obtain, or experience delays in obtaining, necessary governmental permits and authorizations; and increases in costs of materials, labor or other expenses may result in communities that we develop or redevelop failing to achieve expected profitability. Additional discussions of risks and uncertainties appear in the Company’s filings with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 under the headings “Risk Factors” and under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Statements” and in subsequent quarterly reports on Form 10-Q. The Company does not undertake a duty to update forward-looking statements, including its expected second quarter and full year 2011 operating results. The Company may, in its discretion, provide information in future public announcements regarding its outlook that may be of interest to the investment community. The format and extent of future outlooks may be different from the format and extent of the information contained in this release.

Definitions and Reconciliations

Non-GAAP financial measures and other capitalized terms, as used in this earnings release, are defined and further explained on Attachment 13, “Definitions and Reconciliations of Non-GAAP Financial Measures and Other Terms.” Attachment 13 is included in the full earnings release available at the Company’s website at http://www.avalonbay.com/earnings. This wire distribution includes only definitions and reconciliations of the following non-GAAP financial measures:

FFO is determined based on a 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, extraordinary gains or losses (as defined by GAAP), cumulative effect of a change in accounting principle and depreciation of real estate assets, including adjustments for unconsolidated partnerships and joint ventures. Management generally considers FFO to be an appropriate supplemental measure of operating performance because, 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 performance of a company’s real estate between periods or as compared to different companies. A reconciliation of FFO to Net income attributable to common stockholders is as follows (dollars in thousands):


	Q1		Q1
	2011		2010
Net income attributable to common stockholders	$	30,341	$	72,523
Depreciation — real estate assets, including discontinued operations and joint venture adjustments		63,194		57,011
Distributions to noncontrolling interests, including discontinued operations		7		14
Gain on sale of previously depreciated real estate assets		—		(50,291	)



FFO attributable to common stockholders	$	93,542	$	79,257


Average shares outstanding — diluted		86,997,530		82,310,670
Earnings per share — diluted	$	0.35	$	0.88

FFO per common share — diluted	$	1.08	$	0.96

Projected FFO, as provided within this 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 projected net income from projected operating performance. A reconciliation of the range provided for Projected FFO per share (diluted) for the second quarter 2011 to the range provided for projected EPS (diluted) is as follows:


	Low			High
	range			range
Projected EPS (diluted) — Q2 2011	$	0.47		$	0.51
Projected depreciation (real estate related)		0.68			0.72
Projected gain on sale of operating communities		(0.09	)		(0.13	)

Projected FFO per share (diluted) — Q2 2011	$	1.06		$	1.10

NOI is defined by the Company as total property revenue less direct property operating expenses (including property taxes), and excludes corporate-level income (including management, development and other fees), corporate-level property management and other indirect operating expenses, investments and investment management expenses, expensed development and other pursuit costs, net interest expense, gain (loss) on extinguishment of debt, general and administrative expense, joint venture income (loss), depreciation expense, impairment loss on land holdings, gain on sale of real estate assets and income from discontinued operations. The Company considers NOI to be an appropriate supplemental measure to net income of operating performance of a community or communities because it helps both investors and management to understand the core operations of a community or communities prior to the allocation of corporate-level property management overhead or general and administrative costs. This is more reflective of the operating performance of a community, and allows for an easier comparison of the operating performance of single assets or groups of assets. In addition, because prospective buyers of real estate have different overhead structures, with varying marginal impact to overhead by acquiring real estate, NOI is considered by many in the real estate industry to be a useful measure for determining the value of a real estate asset or groups of assets.

A reconciliation of NOI (from continuing operations) to Net income, as well as a breakdown of NOI by operating segment, is as follows (dollars in thousands):


	Q1			Q1			Q4
	2011			2010			2010
Net income	$	30,537		$	72,366		$	26,668
Indirect operating expenses, net of corporate income		7,027			7,232			7,978
Investments and investment management expense		1,191			1,039			712
Expensed development and other pursuit costs		651			505			1,057
Interest expense, net		44,271			42,541			46,948
General and administrative expense		7,292			8,895			6,870
Joint venture loss (income)		(503	)		(227	)		(397	)
Depreciation expense		61,299			55,972			60,614
Gain on sale of real estate assets		—			(50,291	)		(1,854	)
(Income) loss from discontinued operations		—			(1,875	)		(23	)

NOI from continuing operations	$	151,765		$	136,157		$	148,573


Established:
New England	$	25,482		$	23,881		$	25,839
Metro NY/NJ		31,559			29,912			31,745
Mid-Atlantic/Midwest		21,643			19,988			21,760
Pacific NW		6,140			6,090			5,796
No. California		17,386			16,329			16,179
So. California		11,955			11,735			11,522

Total Established		114,165			107,935			112,841

Other Stabilized		18,711			12,903			18,499
Development/Redevelopment		18,889			15,319			17,233

NOI from continuing operations	$	151,765		$	136,157		$	148,573

NOI as reported by the Company does not include the operating results from discontinued operations (i.e., assets sold during the period January 1, 2010 through March 31, 2011 or classified as held for sale at March 31, 2011). A reconciliation of NOI from communities sold or classified as discontinued operations to net income for these communities is as follows (dollars in thousands):


	Q1		Q1
	2011		2010
Income from discontinued operations	$	—	$	1,875
Interest expense, net		—		—
Depreciation expense		—		123

NOI from discontinued operations	$	—	$	1,998

NOI from assets sold	$	—	$	1,998
NOI from assets held for sale		—		—

NOI from discontinued operations	$	—	$	1,998

Projected NOI, as used within this release for certain development communities and in calculating the Initial Year Market Cap Rate for dispositions, represents management’s estimate, as of the date of this release (or as of the date

of the buyer’s valuation in the case of dispositions), of projected stabilized rental revenue minus projected stabilized operating expenses. For development communities, Projected NOI is calculated based on the first twelve months of stabilized operations following the completion of construction. In calculating the Initial Year Market Cap Rate, Projected NOI for dispositions is calculated for the first twelve months following the date of the buyer’s valuation. Projected stabilized rental revenue represents management’s estimate of projected gross potential minus projected stabilized economic vacancy and adjusted for projected stabilized concessions plus projected stabilized other rental revenue. Projected stabilized operating expenses do not include interest, income taxes (if any), depreciation or amortization, or any allocation of corporate-level property management overhead or general and administrative costs. Projected gross potential for development communities and dispositions is based on leased rents for occupied homes and management’s best estimate of rental levels for homes which are currently unleased, as well as those homes which will become available for lease during the twelve month forward period used to develop Projected NOI. The weighted average Projected NOI as a percentage of Total Capital Cost is weighted based on the Company’s share of the Total Capital Cost of each community, based on its percentage ownership.

Management believes that Projected NOI of the development communities, on an aggregated weighted average basis, assists investors in understanding management’s estimate of the likely impact on operations of the development communities when the assets are complete and achieve stabilized occupancy (before allocation of any corporate-level property management overhead, general and administrative costs or interest expense). However, in this release the Company has not given a projection of NOI on a company-wide basis. Given the different dates and fiscal years for which NOI is projected for these communities, the projected allocation of corporate-level property management overhead, general and administrative costs and interest expense to communities under development is complex, impractical to develop, and may not be meaningful. Projected NOI of these communities is not a projection of the Company’s overall financial performance or cash flow. There can be no assurance that the communities under development or redevelopment will achieve the Projected NOI as described in this release.

Rental Revenue with Concessions on a Cash Basis is considered by the Company to be a supplemental measure to rental revenue in conformity with GAAP to help investors evaluate the impact of both current and historical concessions on GAAP based rental revenue and to more readily enable comparisons to revenue as reported by other companies. In addition, rental revenue (with concessions on a cash basis) allows an investor to understand the historical trend in cash concessions.

A reconciliation of rental revenue from Established Communities in conformity with GAAP to rental revenue (with concessions on a cash basis) is as follows (dollars in thousands):


	Q1			Q1
	2011			2010
Rental revenue (GAAP basis)	$	171,018		$	164,838
Concessions amortized		573			2,130
Concessions granted		(129	)		(906	)

Rental revenue (with concessions on a cash basis)	$	171,462		$	166,062

% change — GAAP revenue					3.7	%
% change — cash revenue					3.3	%

Economic Gain (Loss) is calculated by the Company as the gain (loss) on sale in accordance with GAAP, less accumulated depreciation through the date of sale and any other non-cash adjustments that may be required under GAAP accounting. Management generally considers Economic Gain (Loss) to be an appropriate supplemental measure to gain (loss) on sale in accordance with GAAP because it helps investors to understand the relationship between the cash proceeds from a sale and the cash invested in the sold community. The Economic Gain (Loss) for each of the communities presented is estimated based on their respective final settlement statements. A reconciliation of Economic Gain (Loss) to gain on sale in accordance with GAAP for the quarter ended March 31, 2011 as well as prior years’ activities is presented in the full earnings release.

Interest Coverage is calculated by the Company as EBITDA from continuing operations, excluding land gains and gain on the sale of investments in real estate joint ventures, 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 attributable to the Company before interest income and expense, income taxes, depreciation and amortization.

A reconciliation of EBITDA and a calculation of Interest Coverage for the first quarter of 2011 are as follows (dollars in thousands):


Net income attributable to common stockholders	$	30,341
Interest expense, net		44,271
Depreciation expense		61,299

EBITDA	$	135,911


EBITDA from continuing operations	$	135,911
EBITDA from discontinued operations		—

EBITDA	$	135,911


EBITDA from continuing operations	$	135,911

Interest charges	$	44,271


Interest coverage		3.1

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, 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.

Initial Year Market Cap Rate is defined by the Company as Projected NOI of a single community for the first 12 months of operations (assuming no repositioning), less estimates for non-routine allowance of approximately $200 — $300 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, amortization and extraordinary items. For this purpose, management’s projection of operating expenses for the community includes a management fee of 3.0% — 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.

Unleveraged IRR on sold communities refers to the internal rate of return calculated by the Company considering the timing and amounts of (i) total revenue during the period owned by the Company and (ii) the gross sales price net of selling costs, offset by (iii) the undepreciated capital cost of the communities at the time of sale and (iv) total direct operating expenses during the period owned by the Company. Each of the items (i), (ii), (iii) and (iv) are calculated in accordance with GAAP.

The calculation of Unleveraged IRR does not include an adjustment for the Company’s general and administrative expense, interest expense, or corporate-level property management and other indirect operating expenses. Therefore, Unleveraged IRR is not a substitute for Net income as a measure of our performance. Management believes that the Unleveraged IRR achieved during the period a community is owned by the Company is useful

because it is one indication of the gross value created by the Company’s acquisition, development or redevelopment, management and sale of a community, before the impact of indirect expenses and Company overhead. The Unleveraged IRR achieved on the communities as cited in this release should not be viewed as an indication of the gross value created with respect to other communities owned by the Company, and the Company does not represent that it will achieve similar Unleveraged IRRs upon the disposition of other communities. The weighted average Unleveraged IRR for sold communities is weighted based on all cash flows over the holding period for each respective community, including net sales proceeds.

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 quarter ended March 31, 2011 is as follows (dollars in thousands):


NOI for Established Communities	$	114,165
NOI for Other Stabilized Communities		18,711
NOI for Development/Redevelopment Communities		18,889

Total NOI generated by real estate assets		151,765
NOI on encumbered assets		46,571

NOI on unencumbered assets		105,194


Unencumbered NOI		69	%

Established Communities are identified by the Company as 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 of the beginning of the prior year. Therefore, for 2011, Established Communities are consolidated communities that have stabilized operations as of January 1, 2010 and are not conducting or planning to conduct substantial redevelopment activities within the current year. Established Communities do not include communities that are currently held for sale or planned for disposition during the current year.

Economic Occupancy is defined as total possible revenue less vacancy loss as a percentage of total possible revenue. Total possible revenue is determined by valuing occupied units at contract rates and vacant units at market rents. Vacancy loss is determined by valuing vacant units at current market rents. By measuring vacant apartments at their market rents, Economic Occupancy takes into account the fact that apartment homes of different sizes and locations within a community have different economic impacts on a community’s gross revenue.

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