10-K 1 a201410-k.htm 10-K 2014 10-K


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) 
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
Commission file number 1-12672
AVALONBAY COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
Maryland
 
77-0404318
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)

Ballston Tower
671 N. Glebe Rd, Suite 800
Arlington, Virginia  22203
(Address of principal executive offices, including zip code)
 
(703) 329-6300
(Registrant’s telephone number, including area code) 
__________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
(Title of each class)
 
(Name of each exchange on which registered)
Common Stock, par value $.01 per share
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    
Yes  ý    No  o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    
Yes  o    No  ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    
Yes  ý    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    
Yes  ý    No  o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ý
 
Accelerated filer o
 
Non-accelerated filer o
 (Do not check if a
smaller reporting company)
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    
Yes  o    No  ý
The aggregate market value of the registrant's Common Stock, par value $.01 per share, held by nonaffiliates of the registrant, as of June 30, 2014 was $18,601,181,331.
The number of shares of the registrant's Common Stock, par value $.01 per share, outstanding as of January 30, 2015 was 132,049,857.
Documents Incorporated by Reference
Portions of AvalonBay Communities, Inc.'s Proxy Statement for the 2015 annual meeting of stockholders, a definitive copy of which will be filed with the SEC within 120 days after the year end of the year covered by this Form 10-K, are incorporated by reference herein as portions of Part III of this Form 10-K.



TABLE OF CONTENTS
 
 
 
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



PART I
This Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Our actual results could differ materially from those set forth in each forward-looking statement. Certain factors that might cause such a difference are discussed in this report, including in the section entitled "Forward-Looking Statements" included in this Form 10-K. You should also review Item 1A. "Risk Factors" for a discussion of various risks that could adversely affect us.
ITEM 1.    BUSINESS
General
AvalonBay Communities, Inc. (the “Company,” which term, unless the context otherwise requires, refers to AvalonBay Communities, Inc. together with its subsidiaries), is a Maryland corporation that has elected to be treated as a real estate investment trust (“REIT”) for federal income tax purposes. We develop, redevelop, acquire, own and operate multifamily communities primarily in New England, the New York/New Jersey metro area, the Mid-Atlantic, the Pacific Northwest, and Northern and Southern California. We focus on leading metropolitan areas in these regions that we believe are characterized by growing employment in high wage sectors of the economy, lower housing affordability and a diverse and vibrant quality of life. We believe these market characteristics offer the opportunity for superior risk-adjusted returns on apartment community investments relative to other markets.
At January 31, 2015, we owned or held a direct or indirect ownership interest in:
252 operating apartment communities containing 74,240 apartment homes in 11 states and the District of Columbia, of which 228 communities containing 66,631 apartment homes were consolidated for financial reporting purposes, two communities containing 618 apartment homes were held by joint ventures in which we hold an ownership interest, and 22 communities containing 6,991 apartment homes were owned by the Funds (as defined below). 12 of the consolidated communities containing 3,998 apartment homes were under redevelopment, as discussed below;
26 wholly-owned communities under construction that are expected to contain an aggregate of 7,924 apartment homes when completed; and
rights to develop an additional 37 communities that, if developed in the manner expected, will contain an estimated 10,384 apartment homes; and
an indirect interest in the Residual JV (as defined in this Form 10-K) which owns direct and indirect interests in assets acquired as part of the Archstone Acquisition (as defined in this Form 10-K), including two land parcels and an indirect interest in a joint venture which owns four apartment communities with 1,410 apartment homes in the United States.
Any discussion of apartment communities and homes as of December 31, 2014 and January 31, 2015 includes 240 apartment homes which were destroyed and are uninhabitable as a result of the fire at Avalon at Edgewater in January 2015.
We generally obtain ownership in an apartment community by developing a new community on either vacant land or land with improvements that we intend to raze, or by acquiring an existing community. In selecting sites for development or acquisition, we favor locations that are near expanding employment centers and convenient to transportation, recreation areas, entertainment, shopping and dining.
Our consolidated real estate investments consist of the following reportable segments: Established Communities, Other Stabilized Communities and Development/Redevelopment Communities.
Established Communities are generally operating communities that were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year such that year-over-year comparisons are meaningful. Other Stabilized Communities are generally all other operating communities that have stabilized occupancy and operating expenses during the current year, but that were not owned or had not achieved stabilization as of the beginning of the prior year such that year-over-year comparisons are not meaningful, as well as communities that are planned for disposition during the current year. Development/Redevelopment Communities consist of communities that are under construction, communities where substantial redevelopment is in progress or is planned to begin during the current year and communities under lease-up. A more detailed description of these segments and other related information can be found in Note 9, "Segment Reporting," of the Consolidated Financial Statements set forth in Item 8 of this report.

1


Our principal financial goal is to increase long-term stockholder value through the development, redevelopment, acquisition, operation and when appropriate, disposition of apartment communities in our markets. To help meet this goal, we regularly (i) monitor our investment allocation by geographic market and product type, (ii) develop, redevelop and acquire an interest in apartment communities in our selected markets, (iii) selectively sell apartment communities that no longer meet our long-term strategy or when opportunities are presented to realize a portion of the value created through our investment and redeploy the proceeds from those sales and (iv) endeavor to maintain a capital structure that is aligned with our business risks with a view to maintaining continuous access to cost-effective capital. Our strategy is to be leaders in multifamily market research, consumer insight and capital allocation, delivering a range of multifamily offerings tailored to serve the needs of the most attractive customer segments in the best-performing U.S. submarkets. A substantial majority of our current communities are upscale, which generally command among the highest rents in their markets. However, we also pursue the ownership and operation of apartment communities that target a variety of customer segments and price points, consistent with our goal of offering a broad range of products and services.
We operate our apartment communities under three core brands Avalon, AVA and Eaves by Avalon. We believe that this branding differentiation allows us to target our product offerings to multiple customer groups and submarkets within our existing geographic footprint. The "Avalon" brand is our core offering, focusing on upscale apartment living and high end amenities and services in urban and suburban markets. Our "AVA" brand is designed for people who want to live in or near urban neighborhoods and in close proximity to public transportation, services, shopping and night-life. AVA apartments are generally smaller, many engineered for roommate living and feature modern design and a technology focus. Our Eaves by Avalon brand is designed for renters who seek good quality apartment living, often in a suburban setting, with practical amenities and services at a more modest price point.
During the three years ended December 31, 2014, excluding activity for the Funds (as defined below), we acquired 59 apartment communities, of which 54 were acquired as part of the Archstone Acquisition (as defined in this Form 10-K). In addition, in 2013 in conjunction with the Archstone Acquisition, excluding the Residual JV, we acquired interests in three unconsolidated joint ventures, as well as the Residual JV, as discussed below, which as of December 31, 2014 own an aggregate of 13 apartment communities. During the three years ended December 31, 2014, we disposed of 16 apartment communities, six of which were acquired in the Archstone Acquisition, and completed the development of 37 apartment communities and the redevelopment of 22 apartment communities. During 2012, we also purchased our joint venture partner's interest in one operating community, obtaining a 100% ownership interest in that apartment community. In addition, we sold one wholly-owned community in 2015 through the date this Form 10-K was filed.
In March 2005, we formed AvalonBay Value Added Fund, L.P. ("Fund I"), a private, discretionary real estate investment vehicle, which we manage and in which we own a 15.2% interest. Fund I acquired communities with the objective of either redeveloping or repositioning them, or taking advantage of market cycle timing and improved operating performance. From its inception in March 2005 through the close of its investment period in 2008, Fund I acquired 20 communities. During the three years ended December 31, 2014, we realized our pro rata share of the gain from the sale of the last of the 17 communities owned by Fund I. During 2014, Fund I disposed of its final four communities. Fund I has a term that expires in March 2015.
In September 2008, we formed AvalonBay Value Added Fund II, L.P. ("Fund II"), a second institutional discretionary real estate investment fund which we manage and in which we own a 31.3% interest. In 2012, Fund II acquired its final operating community. From the commencement of Fund II through the close of its investment period, Fund II acquired 13 operating communities. During the three years ended December 31, 2014, we realized our pro rata share of the gain from the sale of three communities owned by Fund II.
In conjunction with the Archstone Acquisition, excluding the Residual JV, we acquired interests in three additional joint ventures, Archstone Multifamily Partners AC LP (the "U.S. Fund"), Archstone Multifamily Partners AC JV LP (the "AC JV") and Brandywine Apartments of Maryland, LLC ("Brandywine").
The U.S. Fund was formed in July 2011 and is fully invested. The U.S. Fund owns nine communities containing 1,730 apartment homes, one of which includes a marina containing 229 boat slips. Through subsidiaries, we acquired and own the general partner of the fund and hold a 28.6% interest in the fund.
The AC JV is a joint venture in which we acquired Archstone's 20.0% ownership interest. The AC JV was formed in 2011 and owns three operating apartment communities containing 921 apartment homes, one of which completed development in 2014. The AC JV partnership agreement contains provisions that require us to provide a right of first offer ("ROFO") to the AC JV in connection with additional opportunities to acquire or develop additional interests in multifamily real estate assets within a specified geographic radius of the existing assets, generally one mile or less. The ROFO restriction expires in 2019.

2


Brandywine owns a 305 apartment home community located in Washington, DC, which is managed by a third party. Brandywine is comprised of five members who hold various interests in the joint venture. In conjunction with the Archstone Acquisition, we acquired a 26.1% equity interest in the venture, and subsequently purchased an additional 2.6% interest, and as of December 31, 2014, hold a 28.7% equity interest in the venture.
A more detailed description of Fund I, Fund II, the U.S. Fund and the AC JV (collectively, the "Funds"), Brandywine and the related investment activity can be found in the discussion in Note 6, "Investments in Real Estate Entities," of the Consolidated Financial Statements in Item 8 of this report and in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Through subsidiaries, the Company and Equity Residential entered into three limited liability company agreements (collectively, the “Residual JV”) through which the Company and Equity Residential acquired (i) certain assets of Archstone that the Company and Equity Residential plan to divest (to third parties or to the Company or Equity Residential) over time (the “Residual Assets”), and (ii) various liabilities of Archstone that the Company and Equity Residential agreed to assume in conjunction with the Archstone Acquisition (the “Residual Liabilities”).  The Residual Assets currently include a 20.0% interest in Lake Mendota Investments, LLC and Subsidiaries ("SWIB"), a joint venture which currently owns and manages four apartment communities with 1,410 apartment homes in the United States; two land parcels; and various licenses, insurance policies, contracts, office leases and other miscellaneous assets. The Residual Liabilities include most existing or future litigation and claims related to Archstone’s operations for periods before the close of the Archstone Acquisition, except for (i) claims that principally relate to the physical condition of the assets acquired directly by the Company or Equity Residential, which generally remain the sole responsibility of the Company or Equity Residential, as applicable, and (ii) certain tax and other litigation between Archstone and various equity holders in Archstone related to periods before the close of the Archstone Acquisition, and claims which may arise due to changes in the capital structure of Archstone that occurred prior to closing, for which Lehman has agreed to indemnify the Company and Equity Residential. The Company and Equity Residential jointly control the Residual JV and the Company holds a 40.0% economic interest in the assets and liabilities of the Residual JV.
Including sales by unconsolidated entities and entities in which we held a residual profits interest, and excluding the sale of indirect interests associated with the Residual JV, during 2014 we sold 12 operating communities and recognized a gain in accordance with U.S. generally accepted accounting principles ("GAAP") of $181,557,000. We also recognized income of $60,534,000 representing our promoted interests in certain of the unconsolidated ventures disposed of in 2014.
A further discussion of our development, redevelopment, disposition, acquisition, property management and related strategies follows.
Development Strategy.    We select land for development and follow established procedures that we believe minimize both the cost and the risks of development. As one of the largest developers of multifamily rental apartment communities in our selected markets, we identify development opportunities through local market presence and access to local market information achieved through our regional offices. In addition to our principal executive office in Arlington, Virginia, we also maintain regional offices, administrative offices or specialty offices, including offices that are in or near the following cities:
Boston, Massachusetts;
Long Island, New York;
Los Angeles, California;
New York, New York;
Newport Beach, California;
San Francisco, California;
San Jose, California;
Seattle, Washington;
Fairfield, Connecticut;
Virginia Beach, Virginia; and
Woodbridge, New Jersey.

3


After selecting a target site, we usually negotiate for the right to acquire the site either through an option or a long-term conditional contract. Options and long-term conditional contracts generally allow us to acquire the target site shortly before the start of construction, which reduces development-related risks and preserves capital. However, as a result of competitive market conditions for land suitable for development, we have sometimes acquired and held land prior to construction for extended periods while entitlements are obtained, or acquired land zoned for uses other than residential with the potential for rezoning. For further discussion of our Development Rights, refer to Item 2. "Communities" in this report.
We generally act as our own general contractor and construction manager, except for certain mid-rise and high-rise apartment communities, where we may elect to use third-party general contractors as construction managers. We generally perform these functions directly (although we may use a wholly-owned subsidiary) both for ourselves and for the joint ventures and partnerships of which we are a member or a partner. We believe direct involvement in construction enables us to achieve higher construction quality, greater control over construction schedules and cost savings. Our development, property management and construction teams monitor construction progress to ensure quality workmanship and a smooth and timely transition into the leasing and operating phase.
During periods where competition for development land is more intense, we may acquire improved land with existing commercial uses and rezone the site for multifamily residential use. During the period that we hold these buildings for future development, any rent received in excess of expenses from these operations, which we consider to be incidental, is accounted for as a reduction in our investment in the development pursuit and not as net income. Any expenses relating to these operations, in excess of any rents received, are accounted for as a reduction in net income. We have also participated, and may in the future participate, in master planned or other large multi-use developments where we commit to build infrastructure (such as roads) to be used by other participants or commit to act as construction manager or general contractor in building structures or spaces for third parties (such as unimproved ground floor retail space, municipal garages or parks). Costs we incur in connection with these activities may be accounted for as additional invested capital in the community or we may earn fee income for providing these services. Particularly with large scale, urban in-fill developments, we may engage in significant environmental remediation efforts to prepare a site for construction.
Throughout this report, the term "development" is used to refer to the entire property development cycle, including pursuit of zoning approvals, procurement of architectural and engineering designs and the construction process. References to "construction" refer to the actual construction of the property, which is only one element of the development cycle.
Redevelopment Strategy.    When we undertake the redevelopment of a community, our goal is to renovate and/or rebuild an existing community so that our total investment is generally below replacement cost and the community is well positioned in the market to achieve attractive returns on our capital. We have dedicated redevelopment teams and procedures that are intended to control both the cost and risks of redevelopment. Our redevelopment teams, which include redevelopment, construction and property management personnel, monitor redevelopment progress. We believe we achieve significant cost savings by acting as our own general contractor. More importantly, this helps to ensure quality design and workmanship and a smooth and timely transition into the lease-up and restabilization phases.
Throughout this report, the term "redevelopment" is used to refer to the entire redevelopment cycle, including planning and procurement of architectural and engineering designs, budgeting and actual renovation work. The actual renovation work is referred to as "reconstruction," which is only one element of the redevelopment cycle.
Disposition Strategy.    We sell assets that no longer meet our long-term strategy or when market conditions are favorable, and we redeploy the proceeds from those sales to develop, redevelop and acquire communities and to rebalance our portfolio across or within geographic regions. This also allows us to realize a portion of the value created through our investments and provides additional liquidity. We are then able to redeploy the net proceeds from our dispositions in lieu of raising that amount of capital externally. When we decide to sell a community, we generally solicit competing bids from unrelated parties for these individual assets and consider the sales price of each proposal.
As part of the Archstone Acquisition, we acquired 14 assets that were contributed by third parties on a tax-deferred basis to an Archstone partnership in which the third parties received ownership interests. To protect the tax-deferred nature of the contribution, the third parties are entitled to cash payments if we trigger tax obligations to the third parties by selling, or repaying secured financing on, the contributed assets. As of December 31, 2014, the aggregate amount of the tax protection payments that would be triggered by the sale of all 14 contributed assets is estimated to be approximately $44,000,000.
Acquisition Strategy.    Our core competencies in development and redevelopment discussed above allow us to be selective in the acquisitions we target. Acquisitions allow us to achieve rapid penetration into markets in which we desire an increased presence. Acquisitions (and dispositions) also help us achieve our desired product mix or rebalance our portfolio. Portfolio growth also allows for fixed general and administrative costs to be a smaller percentage of overall community Net Operating Income ("NOI").

4


We are not presently pursuing the formation of a new discretionary real estate investment fund, preferring at this time to maintain flexibility in shaping our portfolio of wholly-owned assets through acquisitions and dispositions.
Property Management Strategy.    We seek to increase operating income through innovative, proactive property management that will result in higher revenue from communities while constraining operating expenses. Our principal strategies to maximize revenue include:
focusing on resident satisfaction;
staggering lease terms such that lease expirations are better matched to traffic patterns;
balancing high occupancy with premium pricing and increasing rents as market conditions permit; and
employing revenue management software to optimize the pricing and term of leases.
Constraining growth in operating expenses is another way in which we seek to increase earnings growth. Growth in our portfolio and the resulting increase in revenue allows for fixed operating costs to be spread over a larger volume of revenue, thereby increasing operating margins. We constrain growth in operating expenses in a variety of ways, which include, but are not limited to, the following:
we use purchase order controls, acquiring goods and services from pre-approved vendors;
we use national negotiated contracts and also purchase supplies in bulk where possible;
we bid third-party contracts on a volume basis;
we strive to retain residents through high levels of service in order to eliminate the cost of preparing an apartment home for a new resident and to reduce marketing and vacant apartment utility costs;
we perform turnover work in-house or hire third parties, generally considering the most cost effective approach as well as expertise needed to perform the work;
we undertake preventive maintenance regularly to maximize resident safety and satisfaction, as well as to maximize property and equipment life; and
we aggressively pursue real estate tax appeals.
On-site property management teams receive bonuses based largely upon the NOI produced at their respective communities. We use and continuously seek ways to improve technology applications to help manage our communities, believing that the accurate collection of financial and resident data will enable us to maximize revenue and control costs through careful leasing decisions, maintenance decisions and financial management.
We generally manage the operation and leasing activity of our communities directly (although we may use a wholly-owned subsidiary) both for ourselves and the joint ventures and partnerships of which we are a member or a partner. From time to time we may engage a third party to manage leasing and/or maintenance activity at one or more of our communities.
From time to time we also pursue or arrange ancillary services for our residents to provide additional revenue sources or increase resident satisfaction. As a REIT, we generally cannot provide direct services to our residents that are not customarily provided by a landlord, nor can we directly share in the income of a third party that provides such services. However, we can provide such non-customary services to residents or share in the revenue from such services if we do so through a "taxable REIT subsidiary," which is a subsidiary that is treated as a "C corporation" subject to federal income taxes. See "Tax Matters" below.
Financing Strategy.    We maintain a capital structure that provides financial flexibility to ensure we can select cost effective capital market options that are well matched to our business risks. We estimate that our short-term liquidity needs will be met from cash on hand, borrowings under our $1,300,000,000 revolving variable rate unsecured credit facility (the "Credit Facility"), sales of current operating communities and/or issuance of additional debt or equity securities. A determination to engage in an equity or debt offering depends on a variety of factors such as general market and economic conditions, our short and long-term liquidity needs, the relative costs of debt and equity capital and growth opportunities. A summary of debt and equity activity for the last three years is reflected on our Consolidated Statement of Cash Flows of the Consolidated Financial Statements set forth in Item 8 of this report.

5


We have entered into, and may continue in the future to enter into, joint ventures (including limited liability companies or partnerships) through which we would own an indirect economic interest of less than 100% of the community or communities owned directly by such joint ventures. Our decision to either hold an apartment community in fee simple or to have an indirect interest in the community through a joint venture is based on a variety of factors and considerations, including: (i) the economic and tax terms required by a seller of land or of a community; (ii) our desire to diversify our portfolio of communities by market, submarket and product type; (iii) our desire at times to preserve our capital resources to maintain liquidity or balance sheet strength; and (iv) our projection, in some circumstances, that we will achieve higher returns on our invested capital or reduce our risk if a joint venture vehicle is used. Investments in joint ventures are not limited to a specified percentage of our assets. Each joint venture agreement is individually negotiated, and our ability to operate and/or dispose of a community in our sole discretion may be limited to varying degrees depending on the terms of the joint venture agreement.
In addition, from time to time, we may offer shares of our equity securities, debt securities or options to purchase stock in exchange for property. We may also acquire properties in exchange for properties we currently own.
Other Strategies and Activities.    While we emphasize equity real estate investments in rental apartment communities, we have the ability to invest in other types of real estate, mortgages (including participating or convertible mortgages), securities of other REITs or real estate operating companies, or securities of technology companies that relate to our real estate operations or of companies that provide services to us or our residents, in each case consistent with our qualification as a REIT. In addition, we own and lease retail space at our communities when either (i) the highest and best use of the space is for retail (e.g., street level in an urban area); (ii) we believe the retail space will enhance the attractiveness of the community to residents or; (iii) some component of retail space is required to obtain entitlements to build apartment homes. As of December 31, 2014, we had a total of 625,798 square feet of rentable retail space, excluding retail space within communities currently under construction. Gross rental revenue provided by leased retail space in 2014 was $17,894,000 (1.1% of total revenue). We may also develop a property in conjunction with another real estate company that will own and operate the retail component of a mixed-use building that we help develop. If we secure a development right and believe that its best use, in whole or in part, is to develop the real estate with the intent to sell rather than hold the asset, we may, through a taxable REIT subsidiary, develop real estate for sale. Any investment in securities of other entities, and any development of real estate for sale, is subject to the percentage of ownership limitations, gross income tests, and other limitations that must be observed for REIT qualification.
We have not engaged in trading, underwriting or agency distribution or sale of securities of other issuers and do not intend to do so. At all times we intend to make investments in a manner so as to qualify as a REIT unless, because of circumstances or changes to the Internal Revenue Code of 1986, as amended, or the Code (or the Treasury Regulations thereunder), our Board of Directors determines that it is no longer in our best interest to qualify as a REIT.
Tax Matters
We filed an election with our 1994 federal income tax return to be taxed as a REIT under the Code and intend to maintain our qualification as a REIT in the future. As a qualified REIT, with limited exceptions, such as those described under "Property Management Strategy" above, we will not be taxed under federal and certain state income tax laws at the corporate level on our taxable net income to the extent taxable net income is distributed to our stockholders. We expect to make sufficient distributions to avoid income tax at the corporate level. While we believe that we are organized and qualified as a REIT and we intend to operate in a manner that will allow us to continue to qualify as a REIT, there can be no assurance that we will be successful in this regard. Qualification as a REIT involves the application of highly technical and complex provisions of the Code for which there are limited judicial and administrative interpretations and involves the determination of a variety of factual matters and circumstances not entirely within our control.
Competition
We face competition from other real estate investors, including insurance companies, pension and investment funds, partnerships and investment companies and other REITs, to acquire and develop apartment communities and acquire land for future development. As an owner and operator of apartment communities, we also face competition for prospective residents from other operators whose communities may be perceived to offer a better location or better amenities or whose rent may be perceived as a better value given the quality, location and amenities that the resident seeks. We also compete against condominiums and single-family homes that are for sale or rent. Although we often compete against large, sophisticated developers and operators for development opportunities and for prospective residents, real estate developers and operators of any size can provide effective competition for both real estate assets and potential residents.

6


Environmental and Related Matters
As a current or prior owner, operator and developer of real estate, we are subject to various federal, state and local environmental laws, regulations and ordinances and also could be liable to third parties resulting from environmental contamination or noncompliance at our communities. For some development communities we undertake extensive environmental remediation to prepare the site for construction, which could be a significant portion of our total construction cost. Environmental remediation efforts could expose us to possible liabilities for accidents or improper handling of contaminated materials during construction. These and other risks related to environmental matters are described in more detail in Item 1A. "Risk Factors."
We believe that more government regulation of energy use, along with a greater focus on environmental protection, may, over time, have a significant impact on urban growth patterns. If changes in zoning to encourage greater density and proximity to mass transit do occur, such changes could benefit multifamily housing and those companies with a competency in high-density development. However, there can be no assurance as to whether or when such changes in regulations or zoning will occur or, if they do occur, whether the multifamily industry or the Company will benefit from such changes.
Other Information
We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any document we file at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may call the SEC at 1-202-551-8090 for further information on the operation of the Public Reference Room. Our SEC filings are also available to the public from the SEC's website at www.sec.gov.
We maintain a website at www.avalonbay.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, filed or furnished pursuant to the Securities Exchange Act of 1934 are available free of charge in the "Investor Relations" section of our website as soon as reasonably practicable after the reports are filed with or furnished to the SEC. In addition, the charters of our Board's Nominating and Corporate Governance Committee, Audit Committee and Compensation Committee, as well as our Director Independence Standards, Corporate Governance Guidelines, Code of Conduct, Policy Regarding Shareholder Rights Agreements, Policy Regarding Shareholder Approval of Future Severance Agreements, Executive Stock Ownership Guidelines, and Policy on Recoupment of Incentive Compensation, are available free of charge in that section of our website or by writing to AvalonBay Communities, Inc., Ballston Tower, Suite 800, 671 N. Glebe Rd., Arlington, Virginia 22203, Attention: Chief Financial Officer. To the extent required by the rules of the SEC and the NYSE, we will disclose amendments and waivers relating to these documents in the same place on our website.
We were incorporated under the laws of the State of California in 1978. In 1995, we reincorporated in the State of Maryland and have been focused on the ownership and operation of apartment communities since that time. As of January 31, 2015, we had 3,006 employees.

7


ITEM 1A.    RISK FACTORS
Our operations involve various risks that could have adverse consequences, including those described below. This Item 1A. includes forward-looking statements. You should refer to our discussion of the qualifications and limitations on forward-looking statements in this Form 10-K.
Development, redevelopment and construction risks could affect our profitability.
We intend to continue to develop and redevelop apartment home communities. These activities can include long planning and entitlement timelines and can involve complex and costly activities, including significant environmental remediation or construction work in high-density urban areas. These activities may be exposed to the following risks:
we may abandon opportunities that we have already begun to explore for a number of reasons, including changes in local market conditions or increases in construction or financing costs, and, as a result, we may fail to recover expenses already incurred in exploring those opportunities;
occupancy rates and rents at a community may fail to meet our original expectations for a number of reasons, including changes in market and economic conditions beyond our control and the development by competitors of competing communities;
we may be unable to obtain, or experience delays in obtaining, necessary zoning, occupancy, or other required governmental or third party permits and authorizations, which could result in increased costs or the delay or abandonment of opportunities;
we may incur costs that exceed our original estimates due to increased material, labor or other costs;
we may be unable to complete construction and lease-up of a community on schedule, resulting in increased construction and financing costs and a decrease in expected rental revenues;
we may be unable to obtain financing with favorable terms, or at all, for the proposed development of a community, which may cause us to delay or abandon an opportunity;
we may incur liabilities to third parties during the development process, for example, in connection with managing existing improvements on the site prior to tenant terminations and demolition (such as commercial space) or in connection with providing services to third parties (such as the construction of shared infrastructure or other improvements); and
we may incur liability if our communities are not constructed and operated in compliance with the accessibility provisions of the Americans with Disabilities Acts, the Fair Housing Act or other federal, state or local requirements. Noncompliance could result in imposition of fines, an award of damages to private litigants, and a requirement that we undertake structural modifications to remedy the noncompliance.
We estimate construction costs based on market conditions at the time we prepare our budgets, and our projections include changes that we anticipate but cannot predict with certainty. Construction costs may increase, particularly for labor and certain materials and, for some of our Development Communities and Development Rights (as defined below), the total construction costs may be higher than the original budget. Total capitalized cost includes all capitalized costs incurred and projected to be incurred to develop or redevelop a community, determined in accordance with GAAP, including:
land and/or property acquisition costs;
fees paid to secure air rights and/or tax abatements;
construction or reconstruction costs;
costs of environmental remediation;
real estate taxes;
capitalized interest and insurance;
loan fees;
permits;
professional fees;

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allocated development or redevelopment overhead; and
other regulatory fees.
Costs to redevelop communities that have been acquired have, in some cases, exceeded our original estimates and similar increases in costs may be experienced in the future. We cannot assure you that market rents in effect at the time new development or redevelopment communities complete lease-up will be sufficient to fully offset the effects of any increased construction or reconstruction costs.
Unfavorable changes in market and economic conditions could adversely affect occupancy, rental rates, operating expenses, and the overall market value of our assets, including joint ventures and investments in the Funds.
Local conditions in our markets significantly affect occupancy, rental rates and the operating performance of our communities. The risks that may adversely affect conditions in those markets include the following:
plant closings, industry slowdowns and other factors that adversely affect the local economy;
an oversupply of, or a reduced demand for, apartment homes;
a decline in household formation or employment or lack of employment growth;
the inability or unwillingness of residents to pay rent increases;
rent control or rent stabilization laws, or other laws regulating housing, that could prevent us from raising rents to offset increases in operating costs; and
economic conditions that could cause an increase in our operating expenses, such as increases in property taxes, utilities, compensation of on-site associates and routine maintenance.
Changes in applicable laws, or noncompliance with applicable laws, could adversely affect our operations or expose us to liability.
We must develop, construct and operate our communities in compliance with numerous federal, state and local laws and regulations, some of which may conflict with one another or be subject to limited judicial or regulatory interpretations. These laws and regulations may include zoning laws, building codes, landlord tenant laws and other laws generally applicable to business operations. Noncompliance with laws could expose us to liability.
Lower revenue growth or significant unanticipated expenditures may result from our need to comply with changes in (i) laws imposing remediation requirements and the potential liability for environmental conditions existing on properties or the restrictions on discharges or other conditions, (ii) rent control or rent stabilization laws or other residential landlord/tenant laws, or (iii) other governmental rules and regulations or enforcement policies affecting the development, use and operation of our communities, including changes to building codes and fire and life-safety codes.
Short-term leases expose us to the effects of declining market rents.
Substantially all of our apartment leases are for a term of one year or less. Because these leases generally permit the residents to leave at the end of the lease term without penalty, our rental revenues are impacted by declines in market rents more quickly than if our leases were for longer terms.
Competition could limit our ability to lease apartment homes or increase or maintain rents.
Our apartment communities compete with other housing alternatives to attract residents, including other rental apartments, condominiums and single-family homes that are available for rent, as well as new and existing condominiums and single-family homes for sale. Competitive residential housing in a particular area could adversely affect our ability to lease apartment homes and to increase or maintain rental rates.
Attractive investment opportunities may not be available, which could adversely affect our profitability.
We expect that other real estate investors, including insurance companies, pension funds, other REITs and other well-capitalized investors, will compete with us to acquire existing properties and to develop new properties. This competition could increase prices for properties of the type we would likely pursue and adversely affect our profitability.

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Capital and credit market conditions may adversely affect our access to various sources of capital and/or the cost of capital, which could impact our business activities, dividends, earnings, and common stock price, among other things.
In periods when the capital and credit markets experience significant volatility, the amounts, sources and cost of capital available to us may be adversely affected. We primarily use external financing to fund construction and to refinance indebtedness as it matures. If sufficient sources of external financing are not available to us on cost effective terms, we could be forced to limit our development and redevelopment activity and/or take other actions to fund our business activities and repayment of debt, such as selling assets, reducing our cash dividend or paying out less than 100% of our taxable income. To the extent that we are able and/or choose to access capital at a higher cost than we have experienced in recent years (reflected in higher interest rates for debt financing or a lower stock price for equity financing) our earnings per share and cash flows could be adversely affected. In addition, the price of our common stock may fluctuate significantly and/or decline in a high interest rate or volatile economic environment. We believe that the lenders under our Credit Facility will fulfill their lending obligations thereunder, but if economic conditions deteriorate, there can be no assurance that the ability of those lenders to fulfill their obligations would not be adversely impacted.
Insufficient cash flow could affect our debt financing and create refinancing risk.
We are subject to the risks associated with debt financing, including the risk that our cash flow will be insufficient to meet required payments of principal and interest. In this regard, we note that in order for us to continue to qualify as a REIT, we are required to annually distribute dividends generally equal to at least 90% of our REIT taxable income, computed without regard to the dividends paid deduction and our net capital gain. This requirement limits the amount of our cash flow available to meet required principal and interest payments. The principal outstanding balance on a portion of our debt will not be fully amortized prior to its maturity. Although we may be able to repay our debt by using our cash flows, we cannot assure you that we will have sufficient cash flows available to make all required principal payments. Therefore, we may need to refinance at least a portion of our outstanding debt as it matures. There is a risk that we may not be able to refinance existing debt or that a refinancing will not be done on as favorable terms; either of these outcomes could have a material adverse effect on our financial condition and results of operations.
Rising interest rates could increase interest costs and could affect the market price of our common stock.
We currently have, and may in the future incur, contractual variable interest rate debt. In addition, we regularly seek access to both fixed and variable rate debt financing to repay maturing debt and to finance our development and redevelopment activity. Accordingly, if interest rates increase, our interest costs will also rise, unless we have made arrangements that hedge the risk of rising interest rates. In addition, an increase in market interest rates may lead purchasers of our common stock to demand a greater annual dividend yield, which could adversely affect the market price of our common stock.
Bond financing and zoning compliance requirements could limit our income, restrict the use of communities and cause favorable financing to become unavailable.
We have financed some of our apartment communities with obligations issued by local government agencies because the interest paid to the holders of this debt is generally exempt from federal income taxes and, therefore, the interest rate is generally more favorable to us. These obligations are commonly referred to as "tax-exempt bonds" and generally must be secured by mortgages on our communities. As a condition to obtaining tax-exempt financing, or on occasion as a condition to obtaining favorable zoning in some jurisdictions, we will commit to make some of the apartments in a community available to households whose income does not exceed certain thresholds (e.g., 50% or 80% of area median income), or who meet other qualifying tests. As of December 31, 2014, approximately 6.0% of our apartment homes at current operating communities were under income limitations such as these. These commitments, which may run without expiration or may expire after a period of time (such as 15 or 20 years) may limit our ability to raise rents and, in consequence, can also adversely affect the value of the communities subject to these restrictions.
In addition, some of our tax-exempt bond financing documents require us to obtain a guarantee from a financial institution of payment of the principal of, and interest on, the bonds. The guarantee may take the form of a letter of credit, surety bond, guarantee agreement or other additional collateral. If the financial institution defaults in its guarantee obligations, or if we are unable to renew the applicable guarantee or otherwise post satisfactory collateral, a default will occur under the applicable tax-exempt bonds and the community could be foreclosed upon if we do not redeem the bonds.
Risks related to indebtedness.
We have a Credit Facility with a syndicate of commercial banks. Our organizational documents do not limit the amount or percentage of indebtedness that may be incurred. Accordingly, subject to compliance with outstanding debt covenants, we could incur more debt, resulting in an increased risk of default on our obligations and an increase in debt service requirements that could adversely affect our financial condition and results of operations.

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The mortgages on those of our properties that are subject to secured debt, our Credit Facility and the indenture under which a substantial portion of our debt was issued contain customary restrictions, requirements and other limitations, as well as certain financial and operating covenants including maintenance of certain financial ratios. Maintaining compliance with these restrictions could limit our flexibility. A default in these requirements, if uncured, could result in a requirement that we repay indebtedness, which could severely affect our liquidity and increase our financing costs. Refer to Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" for further discussion.
The mortgages on those of our properties subject to secured debt generally include provisions which stipulate a prepayment penalty or payment that we will be obligated to pay in the event that we elect to repay the mortgage note prior to the earlier of (i) the stated maturity of the note, or (ii) the date at which the mortgage note is prepayable without such penalty or payment. If we elect to repay some or all of the outstanding principal balance for our mortgage notes, we may incur prepayment penalties or payments under these provisions which could adversely affect our results of operations.
Failure to maintain our current credit ratings could adversely affect our cost of funds, related margins, liquidity and access to capital markets.
There are two major debt rating agencies that routinely evaluate and rate our debt. Their ratings are based on a number of factors, which include their assessment of our financial strength, liquidity, capital structure, asset quality, amount of real estate under development, and sustainability of cash flow and earnings, among other factors. If market conditions change, we may not be able to maintain our current credit ratings, which could adversely affect our cost of funds and related margins, liquidity and access to capital markets.
Debt financing may not be available and equity issuances could be dilutive to our stockholders.
Our ability to execute our business strategy depends on our access to an appropriate blend of debt and equity financing. Debt financing may not be available in sufficient amounts or on favorable terms. If we issue additional equity securities, the interests of existing stockholders could be diluted.
Failure to generate sufficient revenue or other liquidity needs could limit cash flow available for distributions to stockholders.
A decrease in rental revenue, or liquidity needs such as the repayment of indebtedness or funding of our development activities, could have an adverse effect on our ability to pay distributions to our stockholders. Significant expenditures associated with each community such as debt service payments, if any, real estate taxes, insurance and maintenance costs are generally not reduced when circumstances cause a reduction in income from a community.
The form, timing and/or amount of dividend distributions in future periods may vary and be impacted by economic and other considerations.
The form, timing and/or amount of dividend distributions will be declared at the discretion of the Board of Directors and will depend on actual cash from operations, our financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and other factors as the Board of Directors may consider relevant. The Board of Directors may modify our dividend policy from time to time.
We may choose to pay dividends in our own stock, in which case stockholders may be required to pay tax in excess of the cash they receive.
We may distribute taxable dividends that are payable in part in our stock, as we did in the fourth quarter of 2008. Taxable stockholders receiving such dividends will be required to include the full amount of the dividend as income to the extent of our current and accumulated earnings and profits for federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such dividends in excess of the cash received. If a U.S. stockholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, the trading price of our stock would experience downward pressure if a significant number of our stockholders sell shares of our stock in order to pay taxes owed on dividends.

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Difficulty of selling apartment communities could limit liquidity and financial flexibility.
Federal tax laws may limit our ability to earn a gain on the sale of a community (unless we own it through a subsidiary which will incur a taxable gain upon sale) if we are found to have held, acquired or developed the community primarily with the intent to resell the community, and this limitation may affect our ability to sell communities without adversely affecting returns to our stockholders. In addition, real estate in our markets can at times be difficult to sell quickly at prices we find acceptable. These potential difficulties in selling real estate in our markets may limit our ability to change or reduce the apartment communities in our portfolio promptly in response to changes in economic or other conditions.
Acquisitions may not yield anticipated results.
Our business strategy includes acquiring as well as developing communities. Our acquisition activities and their success may be exposed to the following risks:
an acquired property may fail to perform as we expected in analyzing our investment; and
our estimate of the costs of repositioning or redeveloping an acquired property may prove inaccurate.
Failure to succeed in new markets, or with new brands and community formats, or in activities other than the development, ownership and operation of residential rental communities may have adverse consequences.
We may from time to time commence development activity or make acquisitions outside of our existing market areas if appropriate opportunities arise. Our historical experience in our existing markets in developing, owning and operating rental communities does not ensure that we will be able to operate successfully in new markets, should we choose to enter them. We may be exposed to a variety of risks if we choose to enter new markets, including an inability to accurately evaluate local apartment market conditions; an inability to obtain land for development or to identify appropriate acquisition opportunities; an inability to hire and retain key personnel; and lack of familiarity with local governmental and permitting procedures.
Although we are primarily in the multifamily business, we also own and lease ancillary retail space when a retail component represents the best use of the space, as is often the case with large urban in-fill developments. We also may engage or have an interest in for-sale activity. We may be unsuccessful in owning and leasing retail space at our communities or in developing real estate with the intent to sell, which could have an adverse effect on our results of operations.
We are currently implementing two new brands of communities that target various customer preferences. We cannot assure that these brands will be successful or that our costs in developing and implementing these brands will result in incremental revenue and earnings.
Land we hold with no current intent to develop may be subject to future impairment charges.
We own parcels of land that we do not currently intend to develop. As discussed in Item 2. "Communities—Other Land and Real Estate Assets" in the event that the fair market value of a parcel changes such that we determine that the carrying basis of the parcel reflected in our financial statements is greater than the parcel's then current fair value, less costs to dispose, we would be subject to an impairment charge, which would reduce our net income.
We are exposed to various risks from our real estate activity through joint ventures.
Instead of acquiring or developing apartment communities directly, at times we invest as a partner or a co-venturer. Joint venture investments (including investments through partnerships or limited liability companies) involve risks, including the possibility that our partner might become insolvent or otherwise refuse to make capital contributions when due; that we may be responsible to our partner for indemnifiable losses; that our partner might at any time have business goals that are inconsistent with ours; and that our partner may be in a position to take action or withhold consent contrary to our instructions or requests. Frequently, we and our partner may each have the right to trigger a buy-sell arrangement, that could cause us to sell our interest, or acquire our partner's interest, at a time when we otherwise would not have initiated such a transaction.
We are exposed to risks associated with investment in and management of discretionary real estate investment funds.
We formed Fund I and Fund II, in which we have an equity interest of 15.2% and 31.3%, and as part of the Archstone Acquisition we acquired equity interests in the U.S. Fund and the AC JV of 28.6% and 20.0%, respectively, which, through wholly-owned subsidiaries, we manage as the general partner and managing member and in which at December 31, 2014 we have an aggregate equity investment, excluding costs incurred in excess of our equity in the underlying net assets of each respective fund, of approximately $250,024,000, net of distributions to us. The investment periods for Fund I, Fund II and the U.S. Fund are over, and Fund I has a term that expires in March 2015. The Funds present risks, including the following:

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our subsidiaries that are the general partners of the Funds are generally liable, under partnership law, for the debts and obligations of the respective Funds, subject to certain exculpation and indemnification rights pursuant to the terms of the partnership agreement of the Funds;
investors in the Funds holding a majority of the partnership interests may remove us as the general partner without cause, in the case of Fund I and Fund II, subject to our right to receive compensation for an additional period of management fees after such removal and our right to acquire one of the properties then held by such Funds;
while we have broad discretion to manage the Funds, the investors or an advisory committee comprised of representatives of the investors must approve certain matters, and as a result we may be unable to cause the Funds to implement certain decisions that we consider beneficial; and
we may be liable and/or our status as a REIT may be jeopardized if either the Funds, or the REIT entities associated with the Funds and/or the U.S. Fund and/or AC JV, fail to comply with various tax or other regulatory matters.
The governance provisions of our joint ventures with Equity Residential could adversely affect our flexibility in dealing with such joint venture assets and liabilities.
In connection with the Archstone Acquisition, we created joint ventures with Equity Residential that manage certain of the acquired assets and liabilities. These structures involve participation in the ventures by Equity Residential whose interests and rights may not be the same as ours. Joint ownership of an investment in real estate involves risks not associated with direct ownership of real estate, including the risk that Equity Residential may at any time have economic or other business interests or goals which become inconsistent with our business interests or goals, including inconsistent goals relating to the sale of properties held in the joint ventures or the timing of the termination and liquidation of the joint ventures. Under the form for the joint venture arrangements, neither we nor Equity Residential expect to individually have the sole power to control the ventures, and an impasse could occur, which could adversely affect the applicable joint venture and decrease potential returns to us and our investors.
We rely on information technology in our operations, and any breach, interruption or security failure of that technology could have a negative impact on our business, results of operations, financial condition and/or reputation.
Information security risks have generally increased in recent years due to the rise in new technologies and the increased sophistication and activities of perpetrators of cyber attacks.
We collect and hold personally identifiable information of our residents and prospective residents in connection with our leasing and property management activities, and we collect and hold personally identifiable information of our associates in connection with their employment. In addition, we engage third party service providers that may have access to such personally identifiable information in connection with providing necessary information technology and security and other business services to us.
We address potential breaches or disclosure of this confidential personally identifiable information by implementing a variety of security measures intended to protect the confidentiality and security of this information including (among others) engaging reputable, recognized firms to help us design and maintain our information technology and data security systems, including testing and verification of their proper and secure operations on a periodic basis. We also maintain cyber risk insurance to cover certain risks arising out of data and network breaches.
However, there can be no assurance that we will be able to prevent unauthorized access to this information. Any failure in or breach of our operational or information security systems, or those of our third party service providers, as a result of cyber attacks or information security breaches could result in a wide range of potentially serious harm to our business operations and financial prospects, including (among others) disruption of our business and operations, disclosure or misuse of confidential or proprietary information (including personal information of our residents and/or associates), damage to our reputation, and/or potentially significant legal and/or financial liabilities and penalties.
We are exposed to risks that are either uninsurable, not economically insurable or in excess of our insurance coverage, including risks from natural disasters such as earthquakes and severe weather.
Earthquake risk. As further described in Item 2. "Communities—Insurance and Risk of Uninsured Losses" many of our West Coast communities are located in the general vicinity of active earthquake faults. We cannot assure you that an earthquake would not cause damage or losses greater than insured levels. In the event of a loss in excess of insured limits, we could lose our capital invested in the affected community, as well as anticipated future revenue from that community. We would also continue to be obligated to repay any mortgage indebtedness or other obligations related to the community. Any such loss could materially and adversely affect our business and our financial condition and results of operations.

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Insurance coverage for earthquakes can be costly and in limited supply. As a result, we may experience shortages in desired coverage levels if market conditions are such that insurance is not available or the cost of insurance makes it, in management's view, economically impractical.
Severe or inclement weather risk. Particularly in New England and the Metro New York/New Jersey area, we are exposed to risks associated with inclement or severe weather, including hurricanes, severe winter storms and coastal flooding. Severe or inclement weather may result in increased costs, such as losses and costs resulting from repair of water and wind damage, removal of snow and ice, and, in the case of our development communities, delays in construction that result in increased construction costs and delays in realizing rental revenues from a community. In addition, severe or inclement weather could increase the need for maintenance of our communities.
Where we have a geographic concentration of exposures, a single catastrophe that affects a region, such as an earthquake that affects the West Coast or a hurricane or severe winter storm that affects the Mid-Atlantic, Metro New York/New Jersey or New England regions, may have a significant negative effect on our financial condition and results of operations.
Terrorism risk. We have significant investments in large metropolitan markets, such as the Metro New York/New Jersey and Washington, D.C. markets, that have in the past been or may in the future be the target of actual or threatened terrorist attacks. Future terrorist attacks in these markets could directly or indirectly damage our communities, both physically and financially, or cause losses that exceed our insurance coverage that could have a material adverse effect on our business, financial condition and results of operations.
A significant uninsured property or liability loss could have a material adverse effect on our financial condition and results of operations.
In addition to the earthquake insurance discussed above, we carry commercial general liability insurance, property insurance and terrorism insurance with respect to our communities on terms we consider commercially reasonable. There are, however, certain types of losses (such as losses arising from acts of war) that are not insured, in full or in part, because they are either uninsurable or the cost of insurance makes it, in management's view, economically impractical. If an uninsured property loss or a property loss in excess of insured limits were to occur, we could lose our capital invested in a community, as well as the anticipated future revenues from such community. We would also continue to be obligated to repay any mortgage indebtedness or other obligations related to the community. If an uninsured liability to a third party were to occur, we would incur the cost of defense and settlement with, or court ordered damages to, that third party. A significant uninsured property or liability loss could materially and adversely affect our business and our financial condition and results of operations.
We may incur costs due to environmental contamination or non-compliance.
Under various federal, state and local environmental and public health laws, regulations and ordinances, we may be required, regardless of knowledge or responsibility, to investigate and remediate the effects of hazardous or toxic substances or petroleum product releases at our properties (including in some cases natural substances such as methane and radon gas) and may be held liable under these laws or common law to a governmental entity or to third parties for property, personal injury or natural resources damages and for investigation and remediation costs incurred as a result of the contamination. These damages and costs may be substantial and may exceed any insurance coverage we have for such events. The presence of these substances, or the failure to properly remediate the contamination, may adversely affect our ability to borrow against, develop, sell or rent the affected property. In addition, some environmental laws create or allow a government agency to impose a lien on the contaminated site in favor of the government for damages and costs it incurs as a result of the contamination.
The development, construction and operation of our communities are subject to regulations and permitting under various federal, state and local laws, regulations and ordinances, which regulate matters including wetlands protection, storm water runoff and wastewater discharge. These laws and regulations may impose restrictions on the manner in which our communities may be developed, and noncompliance with these laws and regulations may subject us to fines and penalties. We do not currently anticipate that we will incur any material liabilities as a result of noncompliance with these laws.
Certain federal, state and local laws, regulations and ordinances govern the removal, encapsulation or disturbance of asbestos containing materials ("ACMs") when such materials are in poor condition or in the event of renovation or demolition of a building. These laws and the common law may impose liability for release of ACMs and may allow third parties to seek recovery from owners or operators of real properties for personal injury associated with exposure to ACMs. We are not aware that any ACMs were used in the construction of the communities we developed. ACMs were, however, used in the construction of a number of the communities that we acquired. We implement an operations and maintenance program at each of the communities at which ACMs are detected. We do not currently anticipate that we will incur any material liabilities as a result of the presence of ACMs at our communities.

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We are aware that some of our communities have lead paint and have implemented an operations and maintenance program at each of those communities. We do not currently anticipate that we will incur any material liabilities as a result of the presence of lead paint at our communities.
Environmental agencies and third parties may assert claims for remediation or personal injury based on the alleged actual or potential intrusion into buildings of chemical vapors from soils or groundwater underlying or in the vicinity of those buildings or on nearby properties. We currently do not anticipate that we will incur any material liabilities as a result of vapor intrusion at our communities.
All of our stabilized operating communities, and all of the communities that we are currently developing, have been subjected to at least a Phase I or similar environmental assessment, which generally does not involve invasive techniques such as soil or ground water sampling. These assessments, together with subsurface assessments conducted on some properties, have not revealed, and we are not otherwise aware of, any environmental conditions that we believe would have a material adverse effect on our business, assets, financial condition or results of operations. In connection with our ownership, operation and development of communities, from time to time we undertake substantial remedial action in response to the presence of subsurface or other contaminants, including contaminants in soil, groundwater and soil vapor beneath or affecting our buildings. In some cases, an indemnity exists upon which we may be able to rely if environmental liability arises from the contamination or remediation costs exceed estimates. There can be no assurance, however, that all necessary remediation actions have been or will be undertaken at our properties or that we will be indemnified, in full or at all, in the event that environmental liability arises.
Mold growth may occur when excessive moisture accumulates in buildings or on building materials, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Although the occurrence of mold at multifamily and other structures, and the need to remediate such mold, is not a new phenomenon, there has been increased awareness in recent years that certain molds may in some instances lead to adverse health effects, including allergic or other reactions. To help limit mold growth, we educate residents about the importance of adequate ventilation and request or require that they notify us when they see mold or excessive moisture. We have established procedures for promptly addressing and remediating mold or excessive moisture from apartment homes when we become aware of its presence regardless of whether we or the resident believe a health risk is presented. However, we cannot provide assurance that mold or excessive moisture will be detected and remediated in a timely manner. If a significant mold problem arises at one of our communities, we could be required to undertake a costly remediation program to contain or remove the mold from the affected community and could be exposed to other liabilities that may exceed any applicable insurance coverage.
Additionally, we have occasionally been involved in developing, managing, leasing and operating various properties for third parties. Consequently, we may be considered to have been an operator of such properties and, therefore, potentially liable for removal or remediation costs or other potential costs which relate to the release or presence of hazardous or toxic substances or petroleum products at such properties. We are not aware of any material environmental liabilities with respect to properties managed or developed by us or our predecessors for such third parties.
We cannot assure you that:
the environmental assessments described above have identified all potential environmental liabilities;
no prior owner created any material environmental condition not known to us or the consultants who prepared the assessments;
no environmental liabilities have developed since the environmental assessments were prepared;
the condition of land or operations in the vicinity of our communities, such as the presence of underground storage tanks, will not affect the environmental condition of our communities;
future uses or conditions, including, without limitation, changes in applicable environmental laws and regulations, will not result in the imposition of environmental liability; and
no environmental liabilities will arise at communities that we have sold for which we may have liability.
Our success depends on key personnel whose continued service is not guaranteed.
Our success depends in part on our ability to attract and retain the services of executive officers and other personnel. Our executive officers make important capital allocation decisions or recommendations to our Board of Directors from among the opportunities identified by our regional offices. There is substantial competition for qualified personnel in the real estate industry, and the loss of several of our key personnel could adversely affect the Company.

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Failure to qualify as a REIT would cause us to be taxed as a corporation, which would significantly reduce funds available for distribution to stockholders.
If we fail to qualify as a REIT for federal income tax purposes, we will be subject to federal income tax on our taxable income at regular corporate rates (subject to any applicable alternative minimum tax). In addition, unless we are entitled to relief under applicable statutory provisions, we would be ineligible to make an election for treatment as a REIT for the four taxable years following the year in which we lose our qualification. The additional tax liability resulting from the failure to qualify as a REIT would significantly reduce or eliminate the amount of funds available for distribution to our stockholders. Furthermore, we would no longer be required to make distributions to our stockholders. Thus, our failure to qualify as a REIT could also impair our ability to expand our business and raise capital, and would adversely affect the value of our common stock.
We believe that we are organized and qualified as a REIT, and we intend to operate in a manner that will allow us to continue to qualify as a REIT. However, we cannot assure you that we are qualified as a REIT, or that we will remain qualified in the future. This is because qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code for which there are only limited judicial and administrative interpretations and involves the determination of a variety of factual matters and circumstances not entirely within our control. In addition, future legislation, new regulations, administrative interpretations or court decisions may significantly change the tax laws or the application of the tax laws with respect to qualification as a REIT for federal income tax purposes or the federal income tax consequences of this qualification.
Even if we qualify as a REIT, we will be subject to certain federal, state and local taxes on our income and property and on taxable income that we do not distribute to our shareholders. In addition, we may through our taxable REIT subsidiaries hold certain assets and engage in certain activities that a REIT could not engage in directly. We also use taxable REIT subsidiaries to hold certain assets that we believe would be subject to the 100% prohibited transaction tax if sold at a gain outside of a taxable REIT subsidiary. Our taxable REIT subsidiaries are subject to U.S. tax as regular corporations. The Archstone Acquisition increased the amount of assets held through our taxable REIT subsidiaries.
The ability of our stockholders to control our policies and effect a change of control of our company is limited by certain provisions of our charter and bylaws and by Maryland law.
There are provisions in our charter and bylaws that may discourage a third party from making a proposal to acquire us, even if some of our stockholders might consider the proposal to be in their best interests. These provisions include the following:
Our charter authorizes our Board of Directors to issue up to 50,000,000 shares of preferred stock without stockholder approval and to establish the preferences and rights, including voting rights, of any series of preferred stock issued. The Board of Directors may issue preferred stock without stockholder approval, which could allow the Board to issue one or more classes or series of preferred stock that could discourage or delay a tender offer or a change in control.
To maintain our qualification as a REIT for federal income tax purposes, not more than 50% in value of our outstanding stock may be owned, directly or indirectly, by or for five or fewer individuals at any time during the last half of any taxable year. To maintain this qualification, and/or to address other concerns about concentrations of ownership of our stock, our charter generally prohibits ownership (directly, indirectly by virtue of the attribution provisions of the Code, or beneficially as defined in Section 13 of the Securities Exchange Act) by any single stockholder of more than 9.8% of the issued and outstanding shares of any class or series of our stock. In general, under our charter, pension plans and mutual funds may directly and beneficially own up to 15% of the outstanding shares of any class or series of stock. Under our charter, our Board of Directors may in its sole discretion waive or modify the ownership limit for one or more persons, but is not required to do so even if such waiver would not affect our qualification as a REIT. These ownership limits may prevent or delay a change in control and, as a result, could adversely affect our stockholders' ability to realize a premium for their shares of common stock.
As a Maryland corporation, we are subject to the provisions of the Maryland General Corporation Law. Maryland law imposes restrictions on some business combinations and requires compliance with statutory procedures before some mergers and acquisitions may occur, which may delay or prevent offers to acquire us or increase the difficulty of completing any offers, even if they are in our stockholders' best interests. In addition, other provisions of the Maryland General Corporation Law permit the Board of Directors to make elections and to take actions without stockholder approval (such as classifying our Board such that the entire Board is not up for re-election annually) that, if made or taken, could have the effect of discouraging or delaying a change in control.


16


ITEM 1B.    UNRESOLVED STAFF COMMENTS
None.
ITEM 2.    COMMUNITIES
Our real estate investments consist primarily of current operating apartment communities, communities in various stages of development ("Development Communities") and Development Rights (as defined below). Our current operating communities are further distinguished as Established Communities, Other Stabilized Communities, Lease-Up Communities and Redevelopment Communities, and exclude communities owned by the Residual JV. While we generally establish the classification of communities on an annual basis, we intend to update the classification of communities during the calendar year to the extent that our plans with regard to the disposition or redevelopment of a community change during the year.
The following is a description of each category:
Current Communities are categorized as Established, Other Stabilized, Lease-Up or Redevelopment according to the following attributes:
Established Communities (also known as Same Store Communities) are consolidated communities where a comparison of operating results from the prior year period to the current year period is meaningful, as these communities were owned and had stabilized occupancy as of the beginning of the prior year period. The Company generally establishes the classification of communities as of the beginning of the calendar year; however, in 2014, effective April 1, 2014, the Company updated its classification of communities primarily to include communities acquired as part of the Archstone Acquisition in the results of operations of our Established Community portfolio for the balance of the year. The Established Communities for the year ended December 31, 2014 are communities that are consolidated for financial reporting purposes, had stabilized occupancy as of January 1, 2013, are not conducting or planning to conduct substantial redevelopment activities, and are not held for sale or planned for disposition within the current year period. Any discussion of results of operations for the Established Communities for the year ended December 31, 2014 excludes communities acquired as part of the Archstone Acquisition. The Established Communities as of December 31, 2014, as updated effective April 1, 2014, are communities that are consolidated for financial reporting purposes, had stabilized occupancy as of April 1, 2013, are not conducting or planning to conduct substantial redevelopment activities, and are not held for sale or planned for disposition within the current year period. Established Communities as of December 31, 2014 include most of the stabilized operating communities acquired as part of the Archstone Acquisition. A community is considered to have stabilized occupancy at the earlier of (i) attainment of 95% physical occupancy or (ii) the one-year anniversary of completion of development or redevelopment.
Other Stabilized Communities includes all other completed communities that we own or have a direct or indirect ownership interest in, and that have stabilized occupancy, as defined above. Other Stabilized Communities do not include communities that are conducting or planning to conduct substantial redevelopment activities within the current year. Other Stabilized Communities for the year ended December 31, 2014 include the stabilized operating communities acquired as part of the Archstone Acquisition.
Lease-Up Communities are communities where construction has been complete for less than one year and where physical occupancy has not reached 95%.
Redevelopment Communities are communities where substantial redevelopment is in progress or is planned to begin during the current year. Redevelopment is considered substantial when capital invested during the reconstruction effort is expected to exceed the lesser of $5,000,000 or 10% of the community's pre-redevelopment basis and is expected to have a material impact on the operations of the community, including occupancy levels and future rental rates.
Development Communities are communities that are under construction and for which a certificate or certificates of occupancy for the entire community have not been received. These communities may be partially complete and operating.
Development Rights are development opportunities in the early phase of the development process for which we either have an option to acquire land or enter into a leasehold interest, for which we are the buyer under a long-term conditional contract to purchase land, where we control the land through a ground lease or own land to develop a new community, or where we are the designated developer in a public-private partnership. We capitalize related pre-development costs incurred in pursuit of new developments for which we currently believe future development is probable.
We currently lease our corporate headquarters located in Arlington, Virginia, as well as our other regional and administrative offices under operating leases.

17


As of December 31, 2014, communities that we owned or held a direct or indirect interest in, excluding indirect interests associated with the Residual JV, were classified as follows:
 
Number of
communities
 
Number of
apartment homes
Current Communities
 

 
 

 
 
 
 
Established Communities (1):
 

 
 

New England
33

 
7,379

Metro NY/NJ (2)
33

 
11,611

Mid-Atlantic
22

 
7,108

Pacific Northwest
13

 
3,179

Northern California
29

 
8,519

Southern California
42

 
11,639

Total Established
172

 
49,435

 
 
 
 
Other Stabilized Communities:
 

 
 

New England
12

 
3,306

Metro NY/NJ
9

 
2,557

Mid-Atlantic
12

 
4,599

Pacific Northwest
2

 
396

Northern California
7

 
1,765

Southern California
12

 
4,640

Non-Core
2

 
474

Total Other Stabilized
56

 
17,737

 
 
 
 
Lease-Up Communities
15

 
3,853

 
 
 
 
Redevelopment Communities
8

 
2,938

 
 
 
 
Total Current Communities
251

 
73,963

 
 
 
 
Development Communities
26

 
8,524

 
 
 
 
Development Rights
37

 
10,384

____________________________
(1)
Reflects the community classification effective April 1, 2014, which includes most stabilized communities acquired as part of the Archstone Acquisition in our Established Communities portfolio.
(2)
Metro NY/NJ Established Communities includes 240 apartment homes which were destroyed and are uninhabitable as a result of the fire at Avalon at Edgewater in January 2015.
Our holdings under each of the above categories are discussed on the following pages.
We generally establish the composition of our Established Communities portfolio annually. Determined as of January 1 of each of the respective years, the Established Communities portfolio for the years ended December 31, 2014, 2013 and 2012, had 23, 19 and 11 communities added, respectively, and six, seven and 17 communities removed, respectively. The Company removes a community from its Established Communities portfolio for the upcoming year (and then generally maintains that designation) if the Company believes that planned activity for a community for the upcoming year will result in that community's expected operations not being comparable to the prior year period. The Company believes that a community's expected operations will not be comparable to the prior year period when it intends either (i) to undertake a significant capital renovation of the community, such that the Company would consider the community to be classified as a Redevelopment Community; or (ii) to dispose of a community through a sale or other disposition transaction. For the years ended December 31, 2014, 2013 and 2012, the Company removed four, five and 10 communities, respectively, from its Established Communities portfolio due to a reclassification to the Redevelopment Community portfolio on account of then current or expected redevelopment, and removed two, two and seven communities, respectively, from its Established Communities portfolio due to the planned disposition of the communities.

18


Effective April 1, 2014, the Company updated its operating segments primarily to include communities acquired as part of the Archstone Acquisition in the results of operations of our Established Community portfolio for the balance of the year. The Established Communities portfolio as of December 31, 2014 added 43 stabilized communities to the Established Communities portfolio, primarily those acquired as part of the Archstone Acquisition, and removed one community from our Established Communities portfolio effective January 1, 2014, due to a reclassification to the Redevelopment Community portfolio.
Current Communities
Our Current Communities include garden-style apartment communities consisting of multi-story buildings in landscaped settings, as well as mid and high rise apartment communities in urban settings. As of January 31, 2015, our Current Communities consisted of 142 garden-style (of which 16 are mixed communities and/or include town homes), 21 high-rise and 89 mid-rise apartment communities.
Our communities generally offer a variety of quality amenities and features, which may include:
fully-equipped kitchens;
lofts and vaulted ceilings;
walk-in closets;
fireplaces;
patios/decks; and
modern appliances.
Other features at various communities may include:
swimming pools;
fitness centers;
tennis courts; and
wi-fi lounges.
As described in Item 1. "Business," we operate under three core brands Avalon, AVA and Eaves by Avalon. Our core "Avalon" brand focuses on upscale apartment living and high end amenities and services. "AVA" targets customers in high energy, transit-served urban neighborhoods and generally feature smaller apartments, many of which are designed for roommate living with an emphasis on modern design and a technology focus. "Eaves by Avalon" is targeted to the cost conscious, "value" segment in suburban areas. We believe that these brands allow us to further penetrate our existing markets by targeting our market by consumer preference and attitude as well as by location and price.
We also have an extensive and ongoing maintenance program to continually maintain and enhance our communities and apartment homes. The aesthetic appeal of our communities and a service-oriented property management team, focused on the specific needs of residents, enhances market appeal to discriminating residents. We believe our mission of Enhancing the Lives of our Residents helps us achieve higher rental rates and occupancy levels while minimizing resident turnover and operating expenses.
Our Current Communities, excluding indirect interests associated with the Residual JV, are located in the following geographic markets:

19


 
Number of
communities at
 
Number of
apartment homes at
 
Percentage of total
apartment homes at
 
1/31/2014
 
1/31/2015
 
1/31/2014
 
1/31/2015
 
1/31/2014
 
1/31/2015
New England
49

 
50

 
11,868

 
11,444

 
16.3
%
 
15.4
%
Boston, MA
34

 
36

 
8,518

 
8,555

 
11.7
%
 
11.5
%
Fairfield County, CT
15

 
14

 
3,350

 
2,889

 
4.6
%
 
3.9
%
 
 
 
 
 
 
 
 
 
 
 
 
Metro NY/NJ
45

 
47

 
14,676

 
15,258

 
20.1
%
 
20.6
%
New York City, NY
10

 
10

 
3,581

 
3,582

 
4.9
%
 
4.8
%
New York Suburban
17

 
19

 
5,039

 
5,554

 
6.9
%
 
7.5
%
New Jersey (1)
18

 
18

 
6,056

 
6,122

 
8.3
%
 
8.3
%
 
 
 
 
 
 
 
 
 
 
 
 
Mid-Atlantic
37

 
37

 
13,118

 
13,308

 
18.0
%
 
17.9
%
Washington Metro
37

 
37

 
13,118

 
13,308

 
18.0
%
 
17.9
%
 
 
 
 
 
 
 
 
 
 
 
 
Pacific Northwest
16

 
16

 
3,794

 
3,858

 
5.2
%
 
5.2
%
Seattle, WA
16

 
16

 
3,794

 
3,858

 
5.2
%
 
5.2
%
 
 
 
 
 
 
 
 
 
 
 
 
Northern California
37

 
41

 
11,104

 
11,974

 
15.3
%
 
16.1
%
Oakland-East Bay, CA
10

 
12

 
3,244

 
3,591

 
4.5
%
 
4.8
%
San Francisco, CA
14

 
15

 
3,207

 
3,480

 
4.4
%
 
4.7
%
San Jose, CA
13

 
14

 
4,653

 
4,903

 
6.4
%
 
6.6
%
 
 
 
 
 
 
 
 
 
 
 
 
Southern California
57

 
57

 
17,221

 
17,132

 
23.7
%
 
23.1
%
Los Angeles, CA
34

 
35

 
10,344

 
10,575

 
14.3
%
 
14.3
%
Orange County, CA
13

 
12

 
3,745

 
3,425

 
5.1
%
 
4.6
%
San Diego, CA
10

 
10

 
3,132

 
3,132

 
4.3
%
 
4.2
%
 
 
 
 
 
 
 
 
 
 
 
 
Non-Core
3

 
4

 
1,030

 
1,266

 
1.4
%
 
1.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
244

 
252

 
72,811

 
74,240

 
100.0
%
 
100.0
%
____________________________
(1)
New Jersey Current Communities includes 240 apartment homes which were destroyed and are uninhabitable as a result of the fire at Avalon at Edgewater in January 2015.
We manage and operate substantially all of our Current Communities. During the year ended December 31, 2014, we completed construction of 4,121 apartment homes in 17 communities and sold 3,234 apartment homes in 12 communities. The average age of our Current Communities, on a weighted average basis according to number of apartment homes, is 19.5 years. When adjusted to reflect redevelopment activity, as if redevelopment were a new construction completion date, the weighted average age of our Current Communities is 13.1 years.
Of the Current Communities, as of January 31, 2015, we owned (directly or through wholly-owned subsidiaries):
a full fee simple, or absolute, ownership interest in 225 operating communities, 12 of which are on land subject to land leases expiring in October 2026, November 2028, May 2041, July 2046, December 2061, September 2065, November 2067, April 2095, May 2105, September 2105, April 2106 and March 2142;
a general partnership interest and an indirect limited partnership interest in Fund I, Fund II, the U.S. Fund and the AC JV. Subsidiaries of Fund II own a fee simple interest in 10 operating communities, subsidiaries of the U.S. Fund own a fee simple interest in nine operating communities, and subsidiaries of the AC JV own a fee simple interest in three operating communities;
a general partnership interest in one partnership structured as a "DownREIT," as described more fully below, that owns one community; and
a membership interest in four limited liability companies, that each hold a fee simple interest in an operating community.

20


For some communities, a land lease is used to support tax advantaged structures that ultimately allow us to purchase the land upon lease expiration. We have options to purchase the underlying land for certain of the land leases for which we have an absolute ownership interest that expire in October 2026, November 2028 and April 2095.
We also hold, directly or through wholly-owned subsidiaries, the full fee simple ownership interest in 24 of the 26 Development Communities and a leasehold interest in two of the Development Communities with the land leases expiring in December 2086 and November 2106. The land lease expiring in 2086 provides an option for the Company to purchase the land at some point during the lease term.
In our partnership structured as a DownREIT, one of our wholly-owned subsidiaries is the general partner, and there are limited partners whose interest in the partnership is represented by units of limited partnership interest. Limited partners are entitled to receive an initial distribution before any distribution is made to the general partner. Under the partnership agreement for the DownREIT, the distributions per unit paid to the holders of units of limited partnership interests are equal to our current common stock dividend amount. The holders of units of limited partnership interest have the right to present all or some of their units for redemption for a cash amount as determined by the partnership agreement and based on the fair value of our common stock. In lieu of a cash redemption by the partnership, we may elect to acquire any unit presented for redemption for one share of our common stock or for such cash amount. As of January 31, 2015, there were 7,500 DownREIT partnership units outstanding. The DownREIT partnership is consolidated for financial reporting purposes.


21


Profile of Current, Development and Unconsolidated Communities (1) (13)
 
 
 
 
 
 
Approx.
rentable area
(Sq. Ft.)
 
Year of
completion/
acquisition
 
Average
size
(Sq. Ft.)
 
Physical
occupancy
at
12/31/14
 
Average economic occupancy
 
Average rental rate
 
Financial
reporting
cost (5)
 
 
City and state
 
Number
of homes
 
 
 
 
 
2014
 
2013
 
$ per
Apt (4)
 
$ per
Sq. Ft.
 
CURRENT COMMUNITIES
 
 
 
 

 
 

 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

NEW ENGLAND
 
 
 
 

 
 

 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Boston, MA
 
 
 
 

 
 

 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Avalon at Lexington
 
Lexington, MA
 
198

 
230,956

 
1994
 
1,166

 
88.9
%
 
93.8
%

95.1
%

$
2,213

 
$
1.90


$
23,922

Avalon Oaks
 
Wilmington, MA
 
204

 
229,932

 
1999
 
1,127

 
90.1
%
 
92.4
%

95.9
%

1,608

 
1.43


22,843

Eaves Quincy
 
Quincy, MA
 
245

 
224,538

 
1986/1995
 
916

 
96.3
%
 
94.6
%

96.5
%

1,674

 
1.83


25,688

Avalon Essex
 
Peabody, MA
 
154

 
198,478

 
2000
 
1,289

 
95.5
%
 
95.9
%

96.3
%

1,933

 
1.50


23,325

Avalon Oaks West
 
Wilmington, MA
 
120

 
133,376

 
2002
 
1,111

 
95.0
%
 
95.8
%

96.1
%

1,628

 
1.47


17,531

Avalon Orchards
 
Marlborough, MA
 
156

 
175,832

 
2002
 
1,127

 
92.3
%
 
95.3
%

96.6
%

1,713

 
1.52


22,963

Avalon at Newton Highlands (10)
 
Newton, MA
 
294

 
341,717

 
2003
 
1,162

 
96.9
%
 
96.4
%

96.2
%

2,611

 
2.25


60,052

Avalon at The Pinehills
 
Plymouth, MA
 
192

 
255,240

 
2004
 
1,329

 
92.7
%
 
95.3
%

97.0
%

2,084

 
1.57


37,460

Eaves Peabody
 
Peabody, MA
 
286

 
250,624

 
1962/2004
 
876

 
96.9
%
 
95.8
%

96.0
%

1,538

 
1.76


35,671

Avalon at Bedford Center
 
Bedford, MA
 
139

 
159,914

 
2006
 
1,150

 
96.4
%
 
97.4
%

96.4
%

2,113

 
1.84


25,143

Avalon Chestnut Hill
 
Chestnut Hill, MA
 
204

 
270,956

 
2007
 
1,328

 
98.0
%
 
97.2
%

96.6
%

3,056

 
2.30


62,382

Avalon Shrewsbury
 
Shrewsbury, MA
 
251

 
272,805

 
2007
 
1,087

 
95.2
%
 
94.4
%

96.1
%

1,598

 
1.47


36,517

Avalon at Lexington Hills
 
Lexington, MA
 
387

 
484,216

 
2008
 
1,251

 
93.0
%
 
95.9
%

95.8
%

2,452

 
1.96


88,956

Avalon Acton
 
Acton, MA
 
380

 
375,074

 
2008
 
987

 
94.5
%
 
95.0
%

96.7
%

1,636

 
1.66


63,305

Avalon Sharon
 
Sharon, MA
 
156

 
175,389

 
2008
 
1,124

 
99.4
%
 
94.9
%

97.3
%

1,937

 
1.72


30,510

Avalon at Center Place (12)
 
Providence, RI
 
225

 
222,835

 
1991/1997
 
990

 
96.9
%
 
95.2
%

96.1
%

2,679

 
2.70


37,046

Avalon at Hingham Shipyard
 
Hingham, MA
 
235

 
290,790

 
2009
 
1,237

 
94.0
%
 
94.1
%

95.3
%

2,469

 
2.00


54,282

Avalon Northborough
 
Northborough, MA
 
382

 
454,033

 
2009
 
1,189

 
96.6
%
 
94.2
%

94.5
%

1,778

 
1.50


60,614

Avalon Blue Hills
 
Randolph, MA
 
276

 
269,990

 
2009
 
978

 
96.4
%
 
95.3
%

94.7
%

1,563

 
1.60


45,926

Avalon Cohasset
 
Cohasset, MA
 
220

 
293,272

 
2012
 
1,333

 
93.2
%
 
93.0
%

94.2
%

2,097

 
1.57


55,051

Avalon Andover
 
Andover, MA
 
115

 
132,918

 
2012
 
1,156

 
92.1
%
 
92.8
%

94.4
%

1,926

 
1.67


26,179

Eaves Burlington
 
Burlington, MA
 
203

 
198,233

 
1988/2012
 
977

 
96.6
%
 
95.9
%
(2)
96.4
%

1,619

 
1.66


45,330

AVA Back Bay
 
Boston, MA
 
271

 
246,774

 
1968/1998
 
911

 
88.9
%
 
93.2
%

95.4
%

3,343

 
3.67

(2)
81,938

Avalon at Prudential Center II
 
Boston, MA
 
266

 
243,315

 
1968/1998
 
915

 
94.4
%
 
95.0
%

94.9
%

3,475

 
3.80


76,055

Avalon at Prudential Center I
 
Boston, MA
 
243

 
242,410

 
1968/1998
 
998

 
94.2
%
 
95.4
%

94.7
%

3,694

 
3.70


60,145

Avalon Burlington
 
Burlington, MA
 
312

 
315,545

 
1989/2013
 
1,011

 
97.1
%
 
93.2
%

91.8
%
(3)
1,824

 
1.80


81,743

Avalon Bear Hill
 
Waltham, MA
 
324

 
391,394

 
1999/2013
 
1,208

 
96.0
%
 
94.2
%

93.4
%
(3)
2,529

 
2.09


129,459

Eaves North Quincy
 
Quincy, MA
 
224

 
157,908

 
1977/2013
 
705

 
95.1
%
 
96.3
%

95.1
%
(3)
1,792

 
2.54


53,831

Avalon Natick
 
Natick, MA
 
407

 
362,744

 
2013
 
891

 
96.3
%
 
96.5
%

46.1
%
(3)
1,908

 
2.14


80,230

Avalon Canton at Blue Hills
 
Canton, MA
 
196

 
235,465

 
2014
 
1,201

 
98.0
%
 
58.8
%
(3)
N/A

(3)
1,847

 
1.54

(3)
39,753

Avalon Exeter (12)
 
Andover, MA
 
187

 
200,641

 
2014
 
1,073

 
74.7
%
 
28.0
%
(3)
N/A

(3)
5,611

 
5.23

(3)
124,430

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fairfield-New Haven, CT
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Eaves Trumbull
 
Trumbull, CT
 
340

 
379,382

 
1997
 
1,116

 
95.0
%
 
95.6
%

96.0
%

1,786

 
1.60


39,211

Eaves Stamford
 
Stamford, CT
 
238

 
222,165

 
1991
 
933

 
92.0
%
 
94.3
%

96.1
%
(2)
2,177

 
2.33


42,697


22


 
 
 
 
 
 
Approx.
rentable area
(Sq. Ft.)
 
Year of
completion/
acquisition
 
Average
size
(Sq. Ft.)
 
Physical
occupancy
at
12/31/14
 
Average economic occupancy
 
Average rental rate
 
Financial
reporting
cost (5)
 
 
City and state
 
Number
of homes
 
 
 
 
 
2014
 
2013
 
$ per
Apt (4)
 
$ per
Sq. Ft.
 
Avalon Wilton I
 
Wilton, CT
 
102

 
158,259

 
1997
 
1,552

 
99.0
%
 
96.0
%

95.5
%

3,330

 
2.15


22,621

Avalon on Stamford Harbor
 
Stamford, CT
 
323

 
322,461

 
2003
 
998

 
96.0
%
 
96.1
%

95.7
%

2,575

 
2.58


64,497

Avalon New Canaan
 
New Canaan, CT
 
104

 
132,080

 
2002
 
1,270

 
90.4
%
 
92.8
%

93.7
%

3,287

 
2.59


25,878

AVA Stamford
 
Stamford, CT
 
306

 
315,380

 
2002/2002
 
1,031

 
96.4
%
 
95.5
%

95.5
%

2,344

 
2.27


74,920

Avalon Danbury
 
Danbury, CT
 
234

 
235,320

 
2005
 
1,006

 
96.6
%
 
96.4
%

95.9
%

1,720

 
1.71


36,241

Avalon Darien
 
Darien, CT
 
189

 
242,675

 
2004
 
1,284

 
96.3
%
 
94.7
%

95.8
%

2,841

 
2.21


43,274

Avalon Milford I
 
Milford, CT
 
246

 
217,077

 
2004
 
882

 
97.2
%
 
95.5
%

96.0
%

1,605

 
1.82


32,170

Avalon Huntington
 
Shelton, CT
 
99

 
139,869

 
2008
 
1,413

 
96.9
%
 
96.7
%

97.3
%

2,306

 
1.63


25,406

Avalon Norwalk
 
Norwalk, CT
 
311

 
310,629

 
2011
 
999

 
95.5
%
 
96.3
%

96.7
%

2,065

 
2.07


74,255

Avalon Wilton II
 
Wilton, CT
 
100

 
128,716

 
2011
 
1,287

 
98.0
%
 
96.6
%

95.6
%

2,430

 
1.89


30,368

Avalon Shelton III
 
Shelton, CT
 
250

 
249,190

 
2013
 
997

 
93.6
%
 
94.5
%

41.8
%
(3)
1,702

 
1.71


48,719

Avalon East Norwalk
 
Norwalk, CT
 
240

 
223,698

 
2013
 
932

 
96.7
%
 
94.5
%

32.8
%
(3)
1,938

 
2.08


46,520

Avalon at Stratford
 
Stratford, CT
 
130

 
148,136

 
2014
 
1,140

 
95.3
%
 
48.6
%
(3)
N/A

(3)
1,797

 
1.58

(3)
29,448

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
METRO NY/NJ
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New York Suburban, NY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Avalon Commons
 
Smithtown, NY
 
312

 
377,240

 
1997
 
1,209

 
95.2
%
 
96.5
%

96.6
%

2,446

 
2.02


38,625

Eaves Nanuet
 
Nanuet, NY
 
504

 
608,842

 
1998
 
1,208

 
96.8
%
 
96.9
%

96.9
%

2,283

 
1.89


57,991

Avalon Green
 
Elmsford, NY
 
105

 
113,538

 
1995
 
1,081

 
94.2
%
 
95.2
%
(2)
95.5
%

2,478

 
2.29

(2)
14,020

Avalon Towers
 
Long Beach, NY
 
109

 
124,611

 
1990/1995
 
1,143

 
96.3
%
 
96.5
%
(2)
95.7
%

3,719

 
3.25

(2)
25,351

Avalon Willow
 
Mamaroneck, NY
 
227

 
216,289

 
2000
 
953

 
96.5
%
 
95.6
%

96.0
%

2,534

 
2.66


48,421

Avalon Court
 
Melville, NY
 
494

 
596,874

 
1997
 
1,208

 
95.9
%
 
96.3
%

96.2
%

2,785

 
2.31


62,199

The Avalon
 
Bronxville, NY
 
110

 
118,952

 
1999
 
1,081

 
94.5
%
 
93.6
%

93.2
%
(2)
4,519

 
4.18


39,206

Avalon at Glen Cove (12)
 
Glen Cove, NY
 
256

 
261,425

 
2004
 
1,021

 
94.9
%
 
96.2
%

96.9
%

2,672

 
2.62


68,937

Avalon Pines
 
Coram, NY
 
450

 
545,989

 
2005
 
1,213

 
95.6
%
 
96.9
%

96.8
%

2,226

 
1.83


72,252

Avalon Glen Cove North (12)
 
Glen Cove, NY
 
111

 
100,754

 
2007
 
908

 
93.7
%
 
96.1
%

96.5
%

2,546

 
2.80


40,145

Avalon White Plains
 
White Plains, NY
 
407

 
372,406

 
2009
 
915

 
95.8
%
 
95.6
%

96.2
%

3,019

 
3.30


152,790

Avalon Charles Pond
 
Coram, NY
 
200

 
208,532

 
2009
 
1,043

 
95.0
%
 
96.6
%

96.6
%

1,958

 
1.88


48,403

Avalon Rockville Centre
 
Rockville Centre, NY
 
349

 
349,048

 
2012
 
1,000

 
96.8
%
 
96.4
%

96.7
%

2,966

 
2.97


111,019

Avalon Green II
 
Elmsford, NY
 
444

 
533,544

 
2012
 
1,202

 
96.4
%
 
94.8
%

95.9
%

2,684

 
2.23


105,325

Avalon Garden City
 
Garden City, NY
 
204

 
288,443

 
2013
 
1,414

 
95.6
%
 
97.2
%

95.4
%
(3)
3,680

 
2.60


67,577

Avalon Westbury
 
Westbury, NY
 
396

 
401,496

 
2006/2013
 
1,014

 
95.7
%
 
96.5
%

96.6
%
(3)
2,719

 
2.68


120,811

Avalon Ossining
 
Ossining, NY
 
168

 
184,137

 
2014
 
1,096

 
97.6
%
 
61.5
%
(3)
N/A

(3)
2,388

 
2.18

(3)
36,484

Avalon Huntington Station
 
Huntington Station, NY
 
303

 
364,602

 
2014
 
1,203

 
90.7
%
 
40.9
%
(3)
N/A

(3)
2,393

 
1.99

(3)
79,415

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New Jersey
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Avalon Cove
 
Jersey City, NJ
 
504

 
574,339

 
1997
 
1,140

 
96.4
%
 
96.5
%

96.1
%

3,419

 
3.00


112,242

Avalon Run (9)
 
Lawrenceville, NJ
 
632

 
707,592

 
1994
 
1,120

 
95.9
%
 
95.3
%

96.1
%

1,597

 
1.43


80,662

Avalon Princeton Junction
 
West Windsor, NJ
 
512

 
486,069

 
1988/1993
 
949

 
96.7
%
 
95.9
%

96.7
%

1,719

 
1.81


48,758

Avalon at Edgewater (15)
 
Edgewater, NJ
 
408

 
428,792

 
2002
 
1,051

 
97.5
%
 
96.4
%

96.5
%

2,725

 
2.59


79,070


23


 
 
 
 
 
 
Approx.
rentable area
(Sq. Ft.)
 
Year of
completion/
acquisition
 
Average
size
(Sq. Ft.)
 
Physical
occupancy
at
12/31/14
 
Average economic occupancy
 
Average rental rate
 
Financial
reporting
cost (5)
 
 
City and state
 
Number
of homes
 
 
 
 
 
2014
 
2013
 
$ per
Apt (4)
 
$ per
Sq. Ft.
 
Avalon at Florham Park
 
Florham Park, NJ
 
270

 
330,410

 
2001
 
1,224

 
94.4
%
 
96.0
%

96.7
%

2,895

 
2.37


43,732

Avalon at Freehold
 
Freehold, NJ
 
296

 
317,356

 
2002
 
1,072

 
94.9
%
 
95.8
%

96.7
%

1,904

 
1.78


35,533

Avalon Run East
 
Lawrenceville, NJ
 
312

 
341,320

 
2005
 
1,094

 
96.8
%
 
96.0
%

96.5
%

1,945

 
1.78


53,051

Avalon Lyndhurst
 
Lyndhurst, NJ
 
328

 
330,408

 
2007
 
1,007

 
95.7
%
 
96.9
%

96.2
%

2,274

 
2.26


79,078

Avalon at Tinton Falls
 
Tinton Falls, NJ
 
216

 
237,747

 
2008
 
1,101

 
96.3
%
 
95.7
%

96.4
%

1,908

 
1.73


41,208

Avalon at West Long Branch
 
West Long Branch, NJ
 
180

 
193,511

 
2011
 
1,075

 
96.7
%
 
95.9
%

96.8
%

2,051

 
1.91


25,661

Avalon North Bergen
 
North Bergen, NJ
 
164

 
146,170

 
2012
 
891

 
95.7
%
 
97.5
%

97.0
%

2,212

 
2.48


40,513

Avalon at Wesmont Station
 
Wood-Ridge, NJ
 
266

 
242,637

 
2012
 
912

 
96.2
%
 
96.7
%

95.9
%

2,093

 
2.29


57,192

Avalon Hackensack at Riverside (12)
 
Hackensack, NJ
 
226

 
228,393

 
2013
 
1,011

 
96.4
%
 
96.8
%

49.3
%
(3)
2,401