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| AvalonBay Communities Provides Initial 2003 Financial Outlook |
ALEXANDRIA, Va., Dec. 19 /PRNewswire-FirstCall/ -- AvalonBay Communities, Inc. (NYSE: AVB; PCX) announced today its initial financial outlook for 2003. A summary table of the narrative that follows is included as Attachment A. The Company expects Earnings per Share ("EPS") for the full year 2002 to be at the high end of the $2.27 to $2.32 range provided by the Company on October 7, 2002. The Company expects Funds from Operations ("FFO") per share for the full year 2002 to be at the low end of the $3.65 and $3.70 range provided by the Company on October 7, 2002. The Company expects EPS for the first quarter 2003 to be in the range of $0.23 to $0.29 and expects EPS for the full year 2003 to be in the range of $1.93 to $2.13. The Company expects FFO per share for the first quarter 2003 to be in the range of $0.78 to $0.84 and expects FFO per share for the full year 2003 to be in the range of $3.15 to $3.35. The principal components of the decline in FFO per share from 2002 to 2003 include a decline in Established Communities Net Operating Income ("NOI") and the short-term dilutive impact of planned asset sales. Management expects FFO per share in the second quarter of 2003 to decline relative to the first quarter primarily due to the timing of planned dispositions, with modest sequential increases in FFO per share in the third and fourth quarters of 2003. The Company's projections are based on a number of assumptions and estimates, including the following: * The Company expects a decline in Established Communities revenue between 2% and 5% for the full year of 2003 compared to 2002. This is based on the Company's review of third party sources of economic forecasts and the Company's adjusted outlook based on consideration of operating statistics such as projected market rents, current leased rents (which includes the impact of rental concessions), turnover and vacancy rates. If the Company were to achieve a sustained rate of revenue for all of 2003 equal to the expected annualized revenue level for the fourth quarter of 2002, the decline in full year 2003 revenue compared to full year 2002 revenue would be between 2% and 3%. In this financial outlook, the collective economic outlook of selected third party economists is referred to as the "consensus" outlook; however, others may use different economic sources than those used by the Company in developing their consensus economic outlook. The consensus economic forecast suggests that the national economy will experience modest job growth in 2003. During 2002, each successive consensus forecast issued by third party economists delayed the timing of recovery and reduced the rate of expected job growth. The Company's financial outlook assumes that the trend toward further downward revisions to job growth forecasts will persist into 2003. Accordingly, while current consensus forecasts suggest 2003 annual job growth in the Company's markets of 0.5% to 1%, the Company has discounted these projections to assume no material job growth in its markets for 2003. Management estimates that if the current consensus outlook for job growth in the Company's markets is achieved in 2003, the Company's estimate for revenue would be positively impacted by 0.5% to 1%. * Operating expenses for Established Communities are expected to increase between 3% and 5%, which is based primarily on our expectation for an increase in non-controllable expenses. Insurance and property taxes in 2003 are in the aggregate expected to increase by 10%, and will account for approximately 80% of the annual total Established Communities operating expense increase. The aggregate of all other components of Established Communities operating expenses (i.e. payroll, maintenance, utilities, office and administrative and marketing) is expected to increase in 2003 by 1% on an annual basis. * The Company expects a decline in full year 2003 NOI for Established Communities between 4% and 9%. The Company's expectation is that Established Communities NOI in the first quarter 2003 will decline from the comparable period of 2002 by approximately 10% to 12%. The Company expects that on a sequential quarter basis, Established Communities NOI will decline during the first and second quarters of 2003, and increase modestly in the third and fourth quarters of 2003. * The Company expects a 50% reduction in new development starts in 2003, which will result in a significant reduction in development activity for 2003. Capital used to fund development activity is expected to be between $275 and $310 million, down from approximately $450 million in 2002. Amounts presented exclude anticipated proceeds from joint venture equity contributions. * The Company expects to expand its disposition program for 2003. Gross proceeds are expected to be between $250 and $350 million. After considering property-specific tax exempt debt, net proceeds from these dispositions are expected to total between $200 and $300 million and will be used to pay down debt, redeem equity securities and/or fund the reduced level of development activity. While asset sales have a short- term adverse impact to FFO per share, the proceeds from the sales provide a cost-effective source of capital to fund planned securities redemptions and development activity. Sales also allow the Company to realize a portion of the embedded value created through its development, redevelopment, acquisition and operating activities. * The Company expects an aggregate net reduction of $100 million in outstanding debt, preferred and/or common stock during 2003. These reductions will be funded by proceeds from dispositions and retained cash. * The Company expects a decline in total overhead (expensed and capitalized costs combined) between 0% to 4% during 2003. Total overhead represents the aggregate of expensed and capitalized corporate, property management, construction and development overhead. Annual corporate and property management overhead (expensed) is expected to increase by approximately 0% to 3% during 2003. Construction and development overhead (capitalized) is expected to decrease by approximately 8% to 11%. Capitalized interest is expected to decline by approximately $10 million, or 30%, on an annual basis for 2003. This decline in capitalized overhead and capitalized interest reflects the significant reduction in our development activity expected for 2003. * Effective January 1, 2003, the Company will begin to recognize as an expense the fair value of all options granted on and after January 1, 2003. The Company estimates that the resulting expense recognized in 2003 will be approximately $0.01 on a per share basis. No other changes in accounting policies for 2003 are currently contemplated. The Company does not undertake a duty to update information provided regarding its expected operating results. The Company may 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 information contained in this release. A discussion regarding FFO and other non-generally accepted accounting ("GAAP") measures, as well as forward-looking statements made in this release, appears at the end of this release. About AvalonBay Communities AvalonBay Communities, Inc., headquartered in Alexandria, Virginia, currently owns or holds an ownership interest in 147 apartment communities containing 43,219 apartment homes in 11 states and the District of Columbia, of which fourteen 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. FFO and other Non-GAAP Measures We consider FFO to be an appropriate supplemental measure of our operating performance because it helps investors understand our ability to incur and service debt and to make capital expenditures. We believe that in order to understand our operating results, FFO should be examined in connection with a review of net income. FFO is determined in accordance with a definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts(R), and is defined as: * net income or loss computed in accordance with GAAP, except that excluded from net income or loss are gains or losses on sales of property and extraordinary gains or losses (as defined by GAAP); * 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. Further, FFO as calculated by other companies may not be comparable to our calculation of FFO. Community NOI does not include either a management fee or any allocation of corporate overhead, and neither community-level NOI nor operating expenses are measures that can be determined in accordance with GAAP. Community NOI should not be considered as an alternative to operating income (as determined in accordance with GAAP) as an indicator of operating performance, or to cash flows from operating activities as a measure of liquidity. Community NOI as disclosed by other REITs may not be comparable to the Company's calculation. An "Established Communities" comparison for 2003 means a comparison of the performance of those communities that the Company owned and that had stabilized operating costs as of January 1, 2002 such that a comparison of the performance between 2002 and 2003 is meaningful. Established Communities are sometimes referred to as "Same Store" communities. "Development Starts" and "Development Completions" represent the total budgeted cost, projected through construction completion, for those communities that start or complete development in the indicated period. "Development Investments" represent the total projected capitalized construction cost incurred in the indicated period on all development communities, regardless of their start or completion date. Forward-Looking Statements This release contains "forward-looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by our use of the words "believe," "expect," "anticipate," "intend," "estimate," "assume," and other similar expressions that predict or indicate future events, achievements or trends or that do not relate to historical matters. We cannot assure the future results or outcome of the matters described in forward-looking statements; rather, these statements merely reflect our current expectations of the approximate outcomes of the matters discussed. You should not rely on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, some of which are beyond our control. These factors may cause our actual performance to differ materially from the anticipated future performance expressed or implied by these forward- looking statements. Some of the factors that could cause our actual performance to differ materially from those expressed or implied by these forward-looking statements include, but are not limited to, the following: * the rents we charge and the occupancy rates at our communities could be lower than we have expected as a result of economic factors such as unexpected increases in the supply of apartments and unexpected changes in population or employment levels; * the expenses we incur could be higher than we have expected as a result of economic factors such as unexpected increases in prevailing wage levels or in insurance, taxes, utilities and other supplies or services; * we may fail to secure development opportunities due to an inability to reach agreements with third parties or to obtain desired zoning and other local approvals; * we may abandon or delay 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 delays in obtaining or an inability to obtain zoning, land-use, building, occupancy and other regulatory approvals or permits on conditions acceptable to us; * construction costs of a community may exceed our original estimates; * we may not complete construction and lease-up of communities under development or redevelopment on schedule, resulting in increased interest and construction costs and rental revenues that are lower than originally expected; * financing may not be available on favorable terms, or at all, and our cash flow from operations and access to cost-effective capital may be insufficient for future development activity and could limit our pursuit of opportunities; * we may not be able to acquire communities at prices we consider reasonable or sell communities for the prices we expect. Furthermore, unexpected circumstances may occur that alter the timing of planned acquisitions or dispositions. Changes in the timing of planned acquisitions or dispositions could have a favorable or unfavorable impact on estimated rental revenues and operating expenses; * newly developed or acquired communities may not produce financial results that are consistent with our historical performance; and * actual economic conditions may be worse than those used in our projections. Additional factors are described in the Company's filings with the Securities and Exchange Commission ("SEC"), 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." Further, we encourage readers to read all of our disclosures in our SEC filings, which discuss factors that may be material to investors and may materially affect our business, financial condition and results of operations. Because of these risks and uncertainties, EPS, FFO per share, funds invested in development, amount of development, acquisitions and dispositions completed, changes in Established Communities revenue, operating expense and NOI, amount of debt offered, and actual changes in expensed and capitalized overhead and interest expense incurred by the Company may be greater or less than indicated by the outlook information described in this release. ATTACHMENT A AvalonBay Communities, Inc. Initial 2003 Financial Outlook As of December 2002 (Dollars in millions, except per share data) Annual 2003 Earnings per Share $1.93 to $2.13 Net gain on asset sales, per share $0.85 to $0.92 Real estate depreciation, per share $2.07 to $2.14 Funds from Operations per share (1) $3.15 to $3.35 Established Communities (1) Rental revenue change (2%) to (5%) Operating expense change 3% to 5% Net Operating Income change (4%) to (9%) Investment activity Acquisition volume $0 Disposition volume $250 to $350 Development Starts (1) $175 to $225 Development Investments (1) $275 to $310 Development Completions (1) $275 to $400 Presale investments $0 Financing activity Securities redemptions (debt, preferred, common) ($100) Estimated retained cash (after capitalized expenditures) $40 (1) In the chart above a term marked with the notation "(1)" indicates a non-GAAP measure that is more fully described at the end of this release under "FFO and other Non-GAAP measures."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
