AvalonBay Communities Inc. Reports Operating Results (10-Q)

AvalonBay Communities Inc. (NYSE:AVB) filed Quarterly Report for the period ended 2010-09-30.

Avalonbay Communities Inc. has a market cap of $9.41 billion; its shares were traded at around $110.16 with a P/E ratio of 29.6 and P/S ratio of 11.1. The dividend yield of Avalonbay Communities Inc. stocks is 3.3%.AVB is in the portfolios of Ken Heebner of CAPITAL GROWTH MANAGEMENT LP, Jim Simons of Renaissance Technologies LLC, Bruce Kovner of Caxton Associates, Jeremy Grantham of GMO LLC, Pioneer Investments, Manning & Napier Advisors, Inc.

Highlight of Business Operations:

During the quarter ended September 30, 2010, we started construction of five communities containing 920 apartment homes at an aggregate total capitalized cost of $232,500,000. Four of our five development starts are second phases of current operating communities. At September 30, 2010, twelve communities were under construction with a total projected capitalized cost of approximately $1,072,500,000. As of September 30, 2010, approximately $779,889,000 of the capital for this development was invested, with $292,611,000 remaining to invest. We have obtained $28,100,000 of this required funding through financing from secured tax-exempt and taxable debt. At September 30, 2010 our combined development under way and in planning currently is $3,192,500,000, providing us the ability to deliver assets into expected favorable market conditions in late 2011 and 2012.

During the three months ended September 30, 2010, we started the redevelopment of Avalon at Decoverly. The redevelopment will focus on the first phase of the community, which comprises 368 of the 564 apartment homes. We expect to complete the redevelopment of Avalon at Decoverly for $7,800,000, excluding costs incurred prior to redevelopment. At September 30, 2010, there were seven communities under redevelopment, with an expected investment of approximately $73,400,000, excluding costs incurred prior to the start of redevelopment, with $33,046,000 remaining to be invested. During the three months ended September 30, 2010, we completed the redevelopment of Avalon Burbank, a 400 apartment home community in Burbank, CA for $23,400,000, excluding costs incurred prior to redevelopment. We expect to increase our current level of redevelopment activity through the end of 2010 and into 2011, taking the opportunity to reinvest and reposition our assets to meet the needs of our residents and ensure that our assets are positioned to outperform as the economy fully recovers.

One of our wholly owned subsidiaries is the general partner of Fund I and we have made an equity investment of approximately $44,000,000 in Fund I (net of distributions and excluding the purchase of a mortgage note secured by a Fund I community), representing a 15.2% combined general partner and limited partner equity interest. Fund I was our principal vehicle for acquiring apartment communities through the close of its investment period in March 2008. Subsidiaries of Fund I have 21 loans, including one held by us, as discussed below, secured by individual assets with amounts outstanding in the aggregate of $434,181,000 with varying maturity dates (or dates after which the loans can be prepaid without penalty), ranging from October 2011 to September 2016. These mortgage loans are secured by the underlying real estate.

In the third quarter of 2010, a lender ran a competitive bid process to sell a $26,000,000 non-recourse mortgage note secured by a Fund I asset. We participated in the bidding and purchased the note on an arms length basis for $24,000,000. The note pays interest-only through the maturity date of October 2014 at a stated interest rate of 6.06%. Subsequent to acquisition, we modified certain terms of the mortgage note, including (i) conforming the original principal balance to our purchase price, (ii) modifying the interest payment terms to require remittance of interest based on available cash flow with any deficiency in the monthly payment amount accruing to the principal due on the note, and (iii) modifying certain terms to help eliminate any potential conflicts between us and Fund I, such as removing any prepayment penalty. At the date of acquisition and at September 30, 2010, the fair value of the underlying collateral exceeded the note s carrying balance.

Fund II has six institutional investors, including us. One of our wholly owned subsidiaries is the general partner of Fund II and we have total equity commitments of $125,000,000, representing a 31.3% combined general partner and limited partner equity interest. Fund II had invested $381,612,000 as of September 30, 2010. Fund II has a term that expires in August 2018, plus two one-year extension options. Fund II now serves as the exclusive vehicle through which we will acquire investment interests in apartment communities until August 2011 or, if earlier, until 90% of the committed capital of Fund II is invested, subject to limited exceptions. Fund II will not include or involve our development activities. We will receive, in addition to any returns on our invested equity, asset management fees, property management fees and redevelopment fees. We will also receive a promoted interest if certain return thresholds are met. During the three months ended September 30, 2010 subsidiaries of Fund II acquired the following three operating communities:

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