New York, November 27, 2012 -- Moody's Investors Service affirmed all ratings of AvalonBay Communities, Inc. (senior unsecured at Baa1), with a stable outlook, following the REIT's announcement of its acquisition of approximately 40% of assets and liabilities of Archstone Enterprise LP from the Lehman Brothers Holdings, Inc.

The acquisition is expected to be completed together with Equity Residential, which will acquire the remaining 60% of assets and liabilities. The total consideration is expected to be approximately $16 billion, including approximately $6.5 billion of equity and the assumption of $9.5 billion of debt and other liabilities. AvalonBay is expected to contribute $670 million in cash toward its portion of the acquisition price and issue $1.9 billion in equity directly to the bankruptcy estate. The REIT will further assume approximately $3.9 billion of debt.

RATINGS RATIONALE

The Baa1 senior unsecured rating reflects AvalonBay's productive, nationally diversified portfolio, which is expected to be strategically strengthened as a result of the proposed acquisition. Moody's is encouraged by AvalonBay's consistent strategy of targeting high barrier to entry apartment markets which have demonstrated greater resilience through the cycle. Also a plus, the combined development pipeline will comprise a smaller proportion of the total portfolio than AvalonBay's stand-alone development exposure, the REIT's key credit challenge. We also view positively the REIT's conservative management team and strong credit profile which allows AvalonBay to absorb the proposed transaction with limited impact on its debt protection metrics. Moreover, Moody's expects the REIT to restore its credit profile within twelve months following the closing of the transaction.

Counterbalancing these strengths, immediately following the closing of the acquisition, AvalonBay's debt protection metrics will deteriorate. Fixed charge coverage is expected to decline to 2.9x from 3.5x at September 30, 2012; net debt/EBITDA is anticipated to increase to 7.0x from 4.9x at the end of the third quarter of 2012, and secured debt will likely rise to 28% from 17% of gross assets. Still, Moody's anticipates these shifts to be temporary, and expects the combined REIT to achieve stabilized net debt/EBITDA closer to the 5.5x, maintain fixed charge coverage in excess of 4.0x and reduce its secured debt to the mid-teens.

The stable rating outlook incorporates Moody's expectation that AvalonBay is successful in financing and executing the proposed acquisition as outlined, as well as in its subsequent efforts to reduce leverage and, in particular, secured debt at the combined company.

Positive rating movement could result from a successful execution of the transaction and smooth integration of the new portfolio. Furthermore, AvalonBay would need to maintain its fixed charge coverage above 4.0x, effective leverage close to 35% of gross assets, net debt/EBITDA below 5.0x, and secured leverage closer to 10% of gross assets. Good liquidity would also be needed for an upgrade, as would a development pipeline consistently below 15%.

Downgrade pressure would occur should the REIT fail to execute on the proposed acquisition and funding strategy as outlined or any integration challenges that would result either in performance deterioration or in the delay in de-leveraging. Specifically, fixed charge coverage below 3.0x, secured leverage above 25% of gross assets, and net debt/EBITDA in excess of 7.0x, all sustained for several quarters, would put pressure on the rating. Any liquidity challenges or an increase in the development pipeline closer to 20% of gross assets would also be viewed negatively.

The following ratings were affirmed with a stable outlook:

AvalonBay Communities, Inc. -- senior unsecured debt at Baa1, senior unsecured MTN at (P)Baa1, senior unsecured shelf at (P)Baa1, subordinate shelf at (P)Baa2, preferred shelf at (P)Baa2

Moody's last rating action with respect to AvalonBay was on July 14, 2010, when Moody's affirmed all ratings with a stable outlook.

AvalonBay Communities, Inc. [NYSE: AVB] is a real estate investment trust headquartered in Arlington, VA; it is in the business of developing, redeveloping, acquiring, and managing apartment communities in high barrier-to-entry markets of the United States. As of September 30, 2012, the REIT owned or held a direct or indirect ownership interest in 205 apartment communities containing 60,101 apartment homes in nine states and the District of Columbia, of which 22 communities were under construction and seven communities were under reconstruction. At September 30, 2012, AvalonBay reported total assets of $9.0 billion and total equity of $4.7 billion.

The principal methodology used in this rating was Moody's Approach for REITs and Other Commercial Property Firms published in July 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

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Maria MaslovskyAsst Vice President - Analyst Financial Institutions Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Nick Levidy MD - Structured Finance Structured Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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