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| AvalonBay Communities, Inc. Updates 2002 Earnings Estimates |
ALEXANDRIA, Va., Oct. 7 /PRNewswire-FirstCall/ -- AvalonBay Communities, Inc. (NYSE: AVB; PCX) announced today that it expects Earnings per Share ("EPS") of $2.27 to $2.32 for the full year 2002, as compared to the current First Call consensus estimate of $1.94. The full year 2002 EPS estimate is higher than the April 2002 EPS outlook published by the Company due to a higher expected gain on the sale of an apartment community. The Company expects the sale to occur in the fourth quarter of 2002. Funds from Operations ("FFO") is expected to be within a range of $3.65 to $3.70 per share for the full year 2002, as compared to the current First Call consensus estimate of $3.85, and approximately $0.86 to $0.88 for the third quarter of 2002, as compared to the current First Call consensus estimate of $0.95. These revised FFO estimates are lower than those previously affirmed by the Company in July and reflect the continuing difficult and declining operating environment in many of the markets in which the Company operates. In July 2002, the Company affirmed the full year 2002 First Call consensus estimate at that time of $3.88 FFO per share and provided an estimate for third quarter 2002 FFO per share of $0.93 to $0.97. The following is a per share summary of the major differences between the Company's prior FFO per share estimates and the Company's current FFO per share estimates: Mid-Point Full Year 3Q 02 2002 July 2002 Company Estimates $0.95 $3.88 Revenue -- Stabilized Communities ($0.04) ($0.12) Operating Expenses -- Stabilized Communities ($0.03) ($0.06) Interest, net ($0.01) ($0.02) Company's Current Estimates -- Mid-Point $0.87 $3.68 Net Operating Income ("NOI") for Established Communities is expected to decline approximately 10.0% to 11.0% for the full year 2002 and 12.0% to 12.5% for the third quarter 2002 as compared to the comparable period of the prior year. Established Communities NOI is expected to decline approximately 4.8% to 5.2% sequentially from the second quarter 2002 to the third quarter 2002. Revenues - Year-Over-Year The absence of meaningful job growth and the strength of single-family housing sales driven by low mortgage rates are the principal factors behind the lower revenue estimates. Year-over-year revenue declines are expected to result from lower effective rental rates, due to higher concessions, lower economic occupancy and lower lease termination fees. The following table depicts expected changes in Established Communities revenue for the third quarter 2002 as compared to the comparable period of the prior year: Established Communities 3Q 02 Compared to 3Q 01 Average Rental Economic Rental Rate Occupancy Revenue Northeast (1.5%) (4.0%) (5.5%) Mid-Atlantic (0.6%) (1.7%) (2.3%) Midwest (4.2%) (2.0%) (6.2%) Pacific Northwest (7.8%) (0.1%) (7.9%) Northern California (15.8%) 0.5% (15.3%) Southern California 1.5% (0.3%) 1.2% Wtd Avg/Total Established (6.3%) (1.5%) (7.8%) Revenues - Sequential Q3 vs. Q2 Sequential revenue declines, as compared to the second quarter 2002, are expected to result from lower effective rental rates, due to higher concessions, flat economic occupancy and lower lease termination fees. Concessions as a percentage of market rent for Established Communities averaged 2.0% during the third quarter 2002, a 70 bps increase over second quarter 2002 levels. The following table depicts expected changes in Established Communities revenue for the third quarter 2002 as compared to the second quarter 2002: Established Communities Sequential Change 3Q Compared to 2Q Average Rental Economic Rental Rate Occupancy Revenue Northeast (1.5%) 1.0% (0.5%) Mid-Atlantic (1.4%) 0.8% (0.6%) Midwest (1.1%) (0.8%) (1.9%) Pacific Northwest (2.4%) (0.7%) (3.1%) Northern California (4.4%) (1.0%) (5.4%) Southern California (0.3%) 2.7% 2.4% Wtd Avg/Total Established (2.3%) 0.3% (2.0%) Revenue from Development/Lease-up Communities is expected to conform to prior estimates, with capitalized costs within previously estimated levels. Initial stabilized yields are expected to conform to the Company's previous estimates as disclosed in the second quarter 2002 earnings release. Expenses Expenses are higher than expected primarily as a result of higher resident turnover costs, bad debt expense, marketing and property taxes. Annualized turnover as of the end of the third quarter 2002 was approximately 65.0% compared to 60.0% for the comparable period last year. Interest expense is higher than planned due to early and expanded issuance of unsecured debt and lower capitalized interest. Established Communities Operating Statistics Market Rents, as defined below under "Definitions of FFO and Other Non- GAAP Terms," are expected to decrease by an average of 5.0% during the third quarter 2002 as compared to the same period in the prior year. Sequentially, as compared to the second quarter 2002, average Market Rents are expected to be flat in the third quarter 2002. Economic Occupancy, as defined below under "Definitions of FFO and Other Non-GAAP Terms," during the third quarter 2002 is expected to be 93.9%, declining from 95.4% during the same period in the prior year. Economic Occupancy is expected to increase 0.3% sequentially from the second quarter 2002. The expected gain was achieved primarily through the use of higher concessions and is not necessarily indicative of general market improvement. 2003 Outlook The Company expects to provide its 2003 outlook in mid-December upon completion of its 2003 budgeting process. Other Matters As the Company's quarterly earnings conference call is not scheduled until October 23, 2002, the Company has posted on its website a question and answer document that addresses questions regarding the revised forecast described in this release. The Questions and Answers Summary will be available at http://www.avalonbay.com/outlook . As previously announced, the Company will release its third quarter 2002 results on October 22, 2002 and will hold a conference call on October 23, 2002 at 11:00 AM Eastern Time (EST). On that conference call, the Company will discuss and answer questions about or related to the matters described in the October 22, 2002 earnings release and this release, including the updated earnings expectations and the third quarter 2002 results. The domestic number to call to participate is 1-877-510-2397. The international number to call to participate is 1-706-634-5877. The domestic number to hear a replay of this call is 1-800-642-1687, and the international number to hear a replay of this call is 1-706-645-9291 - Access Code: 5948468. 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 30 days following the call. About AvalonBay Communities, Inc. AvalonBay Communities, Inc., headquartered in Alexandria, Virginia, currently owns or holds an ownership interest in 146 apartment communities containing 42,914 apartment homes in eleven states and the District of Columbia, of which thirteen communities are under construction and one community is under reconstruction. AvalonBay is in the business of developing, redeveloping, acquiring and managing luxury apartment communities in high barrier-to-entry markets of the United States. More information on AvalonBay may be found on AvalonBay's Web site at http://www.avalonbay.com . For additional information, please contact Thomas J. Sargeant, Executive Vice President and Chief Financial Officer, at (703) 317-4635. Forward-Looking Statements This release 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. The forward-looking statements contained in this release are statements that are subject to various risks and uncertainties, including, but not limited to, possible changes in demand for apartment homes, the effects of economic conditions, the impact of competition and competitive pricing, changes in construction costs, the results of financing efforts, potential acquisitions under agreement, the effects of the Company's accounting policies and other matters detailed 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, 2001 under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Statements." The Company does not undertake a duty to update forward-looking statements, including its expected operating results for the full year 2002. 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 of FFO and Other Non-GAAP Terms Management generally considers FFO to be an appropriate supplemental measure of the operating performance of the Company because it provides investors an understanding of the ability of the Company to incur and service debt and to make capital expenditures. FFO is determined based on a definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT"), which may differ from the methodology for computing FFO used by other REITs, and, accordingly, the Company's calculation of FFO may not be comparable to the FFO reported by other REITs. FFO as used by AvalonBay means net income or loss computed in accordance with generally accepted accounting principles ("GAAP"), except that excluded from net income or loss are gains or losses on sales of property and extraordinary (as defined by GAAP) gains or losses on debt restructuring; plus depreciation of real estate assets; and after adjustments for unconsolidated partnerships and joint ventures. FFO does not represent cash generated from operating activities in accordance with GAAP. Therefore it should not be considered an alternative to net income as an indication of our performance. FFO should also not be considered an alternative to net cash flows from operating activities as determined by GAAP as a measure of liquidity. Additionally, it is not necessarily indicative of cash available to fund cash needs. An "Established Communities" comparison means a comparison of the performance of those communities that the Company owned in each of the last two years and that had stabilized operating costs at the beginning of the first year, such that a comparison of the performance between years is meaningful. Established Communities are sometimes referred to as "Same-Store" communities. Community NOI does not include either a management fee or any allocation of corporate overhead, and neither community level NOI nor community level operating expenses are measures that can be determined in accordance with GAAP. Community NOI is an internal metric used by management to help measure the impact that a community has on company-wide performance and to compare that community's performance to the performance of other communities. Community NOI should not be considered as an alternative to operating income, as determined in accordance with GAAP, as an indicator of the Company's or a community's operating performance, or to cash flows from operating activities (as determined in accordance with GAAP) as a measure of liquidity. Community NOI as disclosed by other REITs may not be comparable to the Company's calculation. Market Rents as reported by the Company are based on the current market rates set by the managers of the Company's communities based on their experience in renting their communities' apartments and publicly available market data. Trends in market rents for a region as reported by others could vary. Market Rents for a period are based on the average Market Rents during that period. By measuring vacant apartments at their market rates, 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. 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. Concessions are considered in calculating average rental rates although they are not taken into account in the contract rates used to determine Economic Occupancy.SOURCE AvalonBay Communities Inc.
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CONTACT:
Thomas J. Sargeant, Executive Vice President
and Chief Financial Officer, of AvalonBay Communities Inc.,
+1-703-317-4635
