AvalonBay Communities, Inc. (NYSE: AVB) (the “Company”) reported
today that Funds from Operations attributable to common
stockholders - diluted (“FFO”) per share for the three months ended
December 31, 2015 increased 11.9% to $1.97 from $1.76 for the prior
year period.
Core FFO per share (as defined in this release) for the three
months ended December 31, 2015 increased 14.4% to $1.99 from $1.74
for the prior year period.
Net Income Attributable to Common Stockholders for the three
months ended December 31, 2015 was $155,428,000. This resulted in
an increase in Earnings per Share – diluted (“EPS”) of 4.6% to
$1.13 for the three months ended December 31, 2015, from $1.08 for
the prior year period.
The increases in FFO per share and Core FFO per share were
primarily driven by an increase in Net Operating Income (“NOI”)
from newly developed and existing operating communities. The
increase in the Company’s EPS was primarily due to an increase in
NOI from newly developed and existing operating communities,
partially offset by a decrease in real estate sales and related
gains during the three months ended December 31, 2015 compared to
the prior year period.
The following table compares the Company’s actual results for
FFO per share and Core FFO per share for the fourth quarter of 2015
to its October 2015 outlook:
Fourth Quarter 2015 Results Comparison to October
2015 Outlook Per Share FFO
Core FFO Projected per share - October 2015 outlook
(1) $ 1.94 $ 1.98 Joint venture income 0.02 — Interest expense and
other 0.01 0.01 Q4 2015 per share reported
results $ 1.97 $ 1.99 (1) The mid-point of the
Company's October 2015 outlook.
For the year ended December 31, 2015, FFO per share increased
11.0% to $8.05 from $7.25 for the prior year. Core FFO per share
for the year ended December 31, 2015 increased 11.4% to $7.55 from
$6.78 for the prior year. EPS for the year ended December 31, 2015
increased 5.8% to $5.51 from $5.21 for the prior year.
The following table compares the Company’s actual results for
FFO per share and Core FFO per share for the full year 2015 to its
results for the full year 2014:
Full Year 2015 Results Comparison to Full Year
2014 Per Share FFO Core
FFO 2014 per share reported results $ 7.25 $ 6.78
Established and redevelopment community NOI 0.44 0.46 Other
community NOI 0.71 0.71 Capital markets and transaction activity
(1) (0.08 ) (0.29 ) Joint venture income and management fees (2)
(0.30 ) (0.05 ) Casualty and impairment gain 0.11 — Lost NOI from
Edgewater fire (0.06 ) — Gain on sale of real estate 0.07 —
Expensed acquisition costs and other (0.09 )
(0.06 ) 2015 per share reported results $ 8.05 $ 7.55
(1) FFO per share for 2015 includes gain on
extinguishment of debt, net. (2) FFO per share includes the
Company's promoted interest from joint venture dispositions.
Commenting on the Company’s results, Tim Naughton, Chairman and
CEO, said, "2015 was another outstanding year for AvalonBay. We
completed a Company record $1.3 billion of new development activity
at an initial projected stabilized yield of 6.7% and delivered
11.4% Core FFO per share growth. We expect healthy growth in our
stabilized portfolio and contributions from new investment activity
to support another year of strong Core FFO per share growth in
2016."
Operating Results for the Three Months Ended
December 31, 2015 Compared to the Prior Year Period
For the Company, total revenue increased by $40,184,000, or
9.1%, to $480,840,000. This increase is primarily due to
growth in revenue from development communities and growth in
Established Community revenue noted below.
For Established Communities, Average Rental Rates increased
5.8%, and were partially offset by a decrease in Economic Occupancy
of 0.4%, resulting in an increase in rental revenue of 5.4%. If the
Company were to include current and previously completed
redevelopment communities in its Established Communities portfolio,
the increase in Established Communities' rental revenue would have
been 5.7%. Total revenue for Established Communities increased
$17,739,000 to $352,951,000. Operating expenses for Established
Communities decreased $922,000, or 0.9%, to $99,830,000. NOI for
Established Communities increased $18,661,000, or 8.0%, to
$253,121,000.
The following table reflects the percentage changes in rental
revenue, operating expenses and NOI for Established Communities for
the fourth quarter of 2015 compared to the fourth quarter of
2014:
Q4 2015 Compared to Q4 2014 Rental Revenue
AvgRentRates
EcOcc
Opex (1)
NOI
% ofNOI
(2)
New England 5.2 % 0.7 % 0.4 % 9.0 % 15.4 % Metro NY/NJ 4.4 % (0.7
)% 1.0 % 3.9 % 24.5 % Mid-Atlantic 0.9 % 0.2 % (0.9 )% 2.0 % 15.2 %
Pacific NW 7.6 % (0.4 )% (1.0 )% 10.6 % 5.0 % No. California 11.3 %
(1.2 )% (3.1 )% 14.9 % 20.9 % So. California 6.7 % (0.7 )% (2.8 )%
10.3 % 19.0 % Total 5.8 % (0.4 %) (0.9 )% 8.0 % 100.0 %
(1) See the full release for discussion of
Q4 year over year variances.
(2) Represents each region's % of total NOI for Q4
2015, including amounts related to communities that have been sold
or that are classified as held for sale.
Operating Results for the Year Ended December 31, 2015
Compared to the Prior Year Period
For the Company, including discontinued operations, total
revenue increased by $170,388,000, or 10.1%, to
$1,856,028,000. This increase is primarily due to growth in
revenue from development communities and growth in Established
Community revenue noted below.
For Established Communities, Average Rental Rates increased
5.3%, and were partially offset by a decrease in Economic Occupancy
of 0.3%, resulting in an increase in rental revenue of 5.0%. If the
Company were to include current and previously completed
redevelopment communities in its Established Communities portfolio,
the increase in Established Communities' rental revenue would have
been 5.2%. Total revenue for Established Communities increased
$65,692,000 to $1,384,823,000. Operating expenses for Established
Communities increased $12,036,000, or 3.0%, to $411,418,000. NOI
for Established Communities increased $53,656,000, or 5.8%, to
$973,405,000.
The following table reflects the percentage changes in rental
revenue, operating expenses and NOI for Established Communities for
the year ended December 31, 2015 compared to the prior year:
Full Year 2015 Compared to Full Year 2014
Rental Revenue
AvgRentRates
EcOcc
Opex (1)
NOI
% ofNOI
(2)
New England 4.1 % 0.4 % 7.2 % 2.8 % 14.4 % Metro NY/NJ 4.0 % (0.6
)% 2.9 % 3.3 % 25.0 % Mid-Atlantic 0.5 % 0.3 % 2.6 % 0.2 % 15.5 %
Pacific NW 7.3 % (0.2 )% 4.5 % 8.2 % 5.1 % No. California 10.4 %
(0.9 )% 2.5 % 11.9 % 21.0 % So. California 6.5 % (0.2 )% (0.1 )%
9.4 % 19.0 % Total 5.3 % (0.3 )% 3.0 % 5.8 % 100.0 % (1) See
the full release for discussion of year over year variances.
(2) Represents each region's % of total NOI for Full Year
2015, including amounts related to communities that have been sold
or that are classified as held for sale.
Development Activity
During the three months ended December 31, 2015, the Company
engaged in the following development activity:
The Company completed the development of five communities:
- Avalon Baker Ranch, located in Lake
Forest, CA;
- Avalon Marlborough, located in
Marlborough, MA;
- AVA Theater District, located in
Boston, MA;
- Avalon Bloomfield Station, located in
Bloomfield, NJ; and
- Avalon Framingham, located in
Framingham, MA.
These five communities contain an aggregate of 1,582 apartment
homes and were constructed for an aggregate Total Capital Cost of
$482,100,000.
The Company started the construction of four communities:
- Avalon Maplewood, located in Maplewood,
NJ;
- Avalon Rockville Centre II, located in
Rockville Centre, NY;
- AVA Wheaton, located in Wheaton, MD;
and
- Avalon Dogpatch, located in San
Francisco, CA.
These communities will contain a total of 1,045 apartment homes
when completed and will be developed for an aggregate estimated
Total Capital Cost of $403,100,000.
The Company added four development rights during the three
months ended December 31, 2015. If developed as expected, these
development rights will contain a total of 1,512 apartment homes
and will be developed for an aggregate estimated Total Capital Cost
of $502,000,000.
The projected Total Capital Cost of overall development rights
decreased to $3.4 billion at December 31, 2015 from $3.6
billion at September 30, 2015.
During 2015, the Company:
- completed the development of 13
communities containing an aggregate of 4,170 apartment homes, for a
Total Capital Cost of $1,312,700,000; and
- commenced the development of 13
communities which are expected to contain an aggregate of 3,758
apartment homes and be completed for a Total Capital Cost of
$1,191,500,000.
Acquisition Activity
In January 2016, the Company acquired Avalon Hoboken located in
Hoboken, NJ. Avalon Hoboken contains 217 apartment homes and was
acquired for a purchase price of $129,700,000, which includes the
assumption of an interest-only mortgage loan secured by the
community in the amount of $67,904,000. The mortgage loan has a
4.18% fixed interest rate and matures in December 2020.
Disposition Activity
Consolidated Apartment Communities
During the three months ended December 31, 2015, the Company
sold Avalon Charles Pond, a wholly-owned community located in
Coram, NY. Avalon Charles Pond contains 200 apartment homes and was
sold for $51,000,000, resulting in a gain in accordance with GAAP
of $9,474,000 and an Economic Gain of $1,531,000. Avalon Charles
Pond yielded an Unleveraged IRR of 6.4% over an investment period
of 7.8 years.
During 2015, the Company sold three wholly-owned communities,
containing 851 apartment homes. These communities were sold for an
aggregate sales price of $265,500,000 and a weighted average
Initial Year Market Cap Rate of 5.3%, resulting in an aggregate
gain in accordance with GAAP of $115,625,000 and an Economic Gain
of $68,174,000. The three communities yielded an Unleveraged IRR of
10.1% over an investment period of 11.5 years.
Unconsolidated Real Estate Investments
During 2015, real estate ventures in which the Company had a
direct investment sold eight communities containing 2,870 apartment
homes for an aggregate sales price of $583,800,000, resulting in an
aggregate gain in accordance with GAAP for the Company of
$33,579,000.
In conjunction with the dispositions and operating activities,
the Company received distributions of $121,636,000 from its
investments in unconsolidated real estate entities. This amount
includes $20,680,000 received from the joint venture partner
associated with MVP I, LLC, the entity that owns Avalon at Mission
Bay North II, upon agreement with the partner to modify the joint
venture agreement to eliminate the Company's promoted interest for
future return calculations and associated distributions.
Prospectively, earnings and distributions for MVP I, LLC will be
based on the Company's 25.0% equity interest in the venture.
Liquidity and Capital Markets
At December 31, 2015, the Company did not have any
borrowings outstanding under its $1,300,000,000 unsecured credit
facility, and had $505,328,000 in unrestricted cash and cash in
escrow.
The Company’s annualized Net Debt-to-Core EBITDA for the fourth
quarter of 2015 was 4.8 times.
During the three months ended December 31, 2015, the
Company had the following capital markets activity:
- The Company issued $300,000,000
principal amount of unsecured notes in a public offering under its
existing shelf registration statement for net proceeds of
approximately $297,072,000. The notes mature in November 2025 and
were issued at a 3.5% coupon interest rate.
- The Company commenced a new continuous
equity program ("CEP IV") under which the Company may sell up to
$1,000,000,000 of its common stock from time to time. As of
December 31, 2015, the Company has not sold any common stock
under the CEP IV.
- The Company repaid two fixed rate
secured mortgage notes pursuant to their scheduled maturity dates
at par. The mortgage notes had an aggregate principal balance of
$103,430,000 and a weighted average effective interest rate of
6.18%.
During 2015, in addition to proceeds from dispositions, the
Company sourced approximately $1,534,423,000 from the following
capital markets activity:
- The Company settled 4,500,000 shares of
common stock for net proceeds of $659,423,000, pursuant to the
forward equity sale contract entered into in September 2014 to sell
4,500,000 shares of common stock, as described in the Company's
third quarter 2014 earnings release dated October 27, 2014.
- The Company issued $825,000,000
aggregate principal amount of unsecured notes in two public
offerings under its existing shelf registration statement, for net
proceeds of $817,725,000 and a weighted average contractual
interest rate of 3.47%.
- The Company borrowed the final
$50,000,000 available under its $300,000,000 variable rate
unsecured term loan, maturing in March 2021.
During 2015, the Company repaid an aggregate of $823,472,000 of
secured indebtedness with a weighted average contractual interest
rate of 6.07% and a weighted average effective interest rate of
4.30%. The Company recognized a net gain in accordance with GAAP of
$26,734,000, consisting of the write-off of unamortized premium net
of deferred financing costs of $38,120,000, partially offset by
prepayment penalties of $11,386,000.
In January 2016, the Company entered into an amendment to
increase its borrowing capacity under its unsecured credit facility
from $1,300,000,000 to $1,500,000,000. In addition, the Company
extended the term of the credit facility from April 2017 to April
2020, with one nine-month extension option available. As part of
the amendment, the Company’s current margin over LIBOR decreased to
0.825% from 0.95%, and its annual facility fee decreased to 0.125%
from 0.15%.
Edgewater Insurance Settlement
In January 2016, the Company reached a final settlement with its
property and casualty insurers regarding the property damage and
lost income related to the Edgewater fire, resulting in aggregate
insurance recoveries for these aspects of this matter, after
self-insurance and deductibles, of $73,008,000. The Company
received $44,000,000 of these recoveries in 2015 and expects to
receive the remaining $29,008,000 during the three months ending
March 31, 2016, which will be recognized as additional casualty
gain and business interruption insurance recovery.
First Quarter 2016 Dividend Declaration
The Company’s Board of Directors declared a dividend for the
first quarter of 2016 of $1.35 per share on the Company’s common
stock (par value of $0.01 per share). The declared dividend is an
8.0% increase over the Company’s prior quarterly dividend of $1.25
per share. The dividend is payable on April 15, 2016 to common
stockholders of record as of March 31, 2016.
In declaring the increased dividend, the Board of Directors
evaluated the Company’s past performance and future prospects for
earnings growth. Additional factors considered in determining the
increase included current common dividend distributions, the
relationship of the current common dividend distribution to the
Company’s Core FFO, the relationship of dividend distributions to
taxable income, distribution requirements under rules governing
real estate investment trusts, and expected growth in taxable
income.
2016 Financial Outlook
The following presents a summary of the Company’s financial
outlook for 2016, further details for which are provided in the
full release.
For its first quarter and full year 2016 financial outlook, the
Company expects the following:
Projected EPS, Projected FFO and Projected Core FFO
Outlook Q1 2016 Full Year 2016
Low
High
Low
High
Projected EPS $1.73 - $1.79 $6.86 - $7.26 Projected FFO per share
$2.04 - $2.10 $8.12 - $8.52 Projected Core FFO per share (1) $1.88
- $1.94 $8.03 - $8.43 (1) Core FFO per share is adjusted for
the items detailed in the Definitions and Reconciliations of this
release.
The following table compares the 2016 full year outlook for FFO
per share and Core FFO per share to the Company’s actual results
for the full year 2015:
Full Year 2016 Outlook Comparison to Full Year
2015 Results Per Share FFO
Core FFO 2015 per share reported results $ 8.05 $
7.55 Established and redevelopment community NOI
0.50
0.50 Other community NOI (1)
0.82
0.67 Capital markets and transaction activity (2) (0.61 ) (0.40 )
JV income, management fees and overhead (3) (0.44 )
(0.09 ) 2016 per share outlook (4) $ 8.32 $
8.23 (1) FFO per share for 2016 includes business
interruption insurance proceeds for Edgewater. (2) FFO per share
for 2015 included gain on extinguishment of debt, net. (3) FFO per
share for 2015 included the Company's promoted interest from joint
ventures and casualty and impairment gains. (4) Represents the
mid-point of the Company's January 2016 outlook.
Other Matters
The Company will hold a conference call on February 4, 2016 at
1:00 PM ET to review and answer questions about this release, its
fourth quarter 2015 results, the Attachments (described below) and
related matters. To participate on the call, dial 877-681-3374
domestically and 719-325-4880 internationally and use conference
id: 6442204.
To hear a replay of the call, which will be available from
February 4, 2016 at 6:00 PM ET to February 11, 2016 at 6:00 PM ET,
dial 888-203-1112 domestically and 719-457-0820 internationally and
use conference id: 6442204. A webcast of the conference call will
also be available at http://www.avalonbay.com/earnings, and an
on-line playback of the webcast will be available for at least 30
days following the call.
The Company produces Earnings Release Attachments (the
"Attachments") that provide detailed information regarding
operating, development, redevelopment, disposition and acquisition
activity. These Attachments are considered a part of this earnings
release and are available in full with this earnings release via
the Company's website at http://www.avalonbay.com/earnings. To
receive future press releases via e-mail, please submit a request
through http://www.avalonbay.com/email.
In addition to the Attachments, the Company is providing a
management letter and teleconference presentation that will be
available on the Company's website at
http://www.avalonbay.com/earnings subsequent to this release and
before the market opens on February 4, 2016. These supplemental
materials will be available on the Company's website for 30 days
following the earnings call.
About AvalonBay Communities, Inc.
As of December 31, 2015, the Company owned or held a direct
or indirect ownership interest in 285 apartment communities
containing 83,696 apartment homes in 11 states and the District of
Columbia, of which 26 communities were under construction and nine
communities were under reconstruction. The Company is an equity
REIT in the business of developing, redeveloping, acquiring and
managing apartment communities in leading metropolitan areas in New
England, the New York/New Jersey Metro area, the Mid-Atlantic, the
Pacific Northwest, and the Northern and Southern California regions
of the United States. More information may be found on the
Company’s website at http://www.avalonbay.com. For additional
information, please contact Jason Reilley, Senior Director of
Investor Relations at 703-317-4681.
Forward-Looking Statements
This release, including its Attachments, contains
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking
statements, which you can identify by the Company’s use of words
such as “expects,” “plans,” “estimates,” “anticipates,” “projects,”
“intends,” “believes,” “outlook” and similar expressions that do
not relate to historical matters, are based on the Company’s
expectations, forecasts and assumptions at the time of this
release, which may not be realized and involve risks and
uncertainties that cannot be predicted accurately or that might not
be anticipated. These could cause actual results to differ
materially from those expressed or implied by the forward-looking
statements. Risks and uncertainties that might cause such
differences include the following, among others: the Company's
expectations and assumptions as of the date of this release
regarding potential uninsured loss amounts and on-going
investigations resulting from the Avalon at Edgewater ("Edgewater")
fire are subject to change and could materially affect the
Company's current expectations regarding the impact of the fire; we
may abandon development or redevelopment opportunities for which we
have already incurred costs; adverse capital and credit market
conditions may affect our access to various sources of capital
and/or cost of capital, which may affect our business activities,
earnings and common stock price, among other things; changes in
local employment conditions, demand for apartment homes, supply of
competitive housing products, and other economic conditions may
result in lower than expected occupancy and/or rental rates and
adversely affect the profitability of our communities; delays in
completing development, redevelopment and/or lease-up may result in
increased financing and construction costs and may delay and/or
reduce the profitability of a community; debt and/or equity
financing for development, redevelopment or acquisitions of
communities may not be available or may not be available on
favorable terms; we may be unable to obtain, or experience delays
in obtaining, necessary governmental permits and authorizations;
expenses may result in communities that we develop or redevelop
failing to achieve expected profitability; our assumptions
concerning risks relating to our lack of control of joint ventures
and our abilities to successfully dispose of certain assets may not
be realized; our assumptions and expectations in our financial
outlook may prove to be too optimistic. Additional discussions of
risks and uncertainties that could cause actual results to differ
materially from those expressed or implied by the forward-looking
statements appear in the Company’s filings with the Securities and
Exchange Commission, including the Company’s Annual Report on Form
10-K for the fiscal year ended December 31, 2014 under the heading
“Risk Factors” and under the heading “Management’s Discussion and
Analysis of Financial Condition and Results of Operations -
Forward-Looking Statements” and in subsequent quarterly reports on
Form 10-Q.
The Company does not undertake a duty to update forward-looking
statements, including its expected 2016 operating results and other
financial data forecasts contained in this release. The Company
may, in its discretion, provide information in future public
announcements regarding its outlook that may be of interest to the
investment community. The format and extent of future outlooks may
be different from the format and extent of the information
contained in this release.
Definitions and Reconciliations
Non-GAAP financial measures and other capitalized terms, as used
in this earnings release, are defined and further explained on
Attachment 15, “Definitions and Reconciliations of Non-GAAP
Financial Measures and Other Terms.” Attachment 15 is included in
the full earnings release available at the Company’s website at
http://www.avalonbay.com/earnings. This wire distribution includes
only definitions and reconciliations of the following non-GAAP
financial measures:
Average Rental Rates are calculated
by the Company as rental revenue in accordance with GAAP, divided
by the weighted average number of occupied apartment homes.
Core FFO is the Company's FFO as
adjusted for the items outlined in the following table (dollars in
thousands, except common share and per share data):
Q4 Q4 Full
Year Full Year 2015 2014 2015 2014 FFO, actual $ 270,154 $
233,484 $ 1,083,085 $ 951,035 Adjusting Items Joint venture
gains (1) (388 ) (1,858 ) (9,059 ) (5,194 ) Casualty and impairment
gain, net (2) (873 ) (1,907 ) (16,247 ) (2,494 ) Lost NOI from
casualty losses 2,790 — 7,862 — Early extinguishment of
consolidated borrowings — — (26,736 ) 412 Gain on sale of real
estate — (490 ) (9,647 ) (490 ) Joint venture promote — (639 )
(21,969 ) (58,128 ) Income taxes (3) 106 9,243 1,103 9,243
Development pursuit and other write-offs (4) 766 — 1,838 2,564
Acquisition costs (5) 352 (7,715 ) 3,806 (7,682 ) Severance related
costs 215 155 1,999 815 Core FFO $
273,122 $ 230,273 $ 1,016,035 $ 890,081
Core FFO per share $ 1.99 $ 1.74 $ 7.55
$ 6.78 Average shares outstanding - diluted
137,349,671 132,677,639 134,593,177 131,237,502 (1) Amounts
for 2014 and 2015 are composed primarily of the Company's
proportionate share of gains and operating results for joint
ventures formed with Equity Residential as part of the Archstone
acquisition. (2) Full year 2015 amount is composed
primarily of property damage and business interruption insurance
proceeds, partially offset by costs from the fire at Edgewater.
(3) Amounts for 2015 and 2014 are composed of income taxes
paid by the Company which are not considered to be a component of
primary operations. (4) Composed of the write-off of
capitalized pursuit costs for development rights as well as the
write-off of certain retail tenant improvements at an operating
community in 2014. (5) Amounts for the three months and full
year ended December 31, 2014 include property tax refunds for
Archstone communities for periods prior to acquisition.
Economic Gain (Loss) is calculated
by the Company as the gain (loss) on sale in accordance with GAAP,
less accumulated depreciation through the date of sale and any
other non-cash adjustments that may be required under GAAP
accounting. Management generally considers Economic Gain (Loss) to
be an appropriate supplemental measure to gain (loss) on sale in
accordance with GAAP because it helps investors to understand the
relationship between the cash proceeds from a sale and the cash
invested in the sold community. The Economic Gain (Loss) for each
of the communities presented is estimated based on their respective
final settlement statements. A reconciliation of Economic Gain
(Loss) to gain on sale in accordance with GAAP for the quarter
ended December 31, 2015 as well as prior years’ activities is
presented in the full release.
Economic Occupancy (“Ec Occ”) is
defined as total possible revenue less vacancy loss as a percentage
of total possible revenue. Total possible revenue (also known as
“gross potential”) is determined by valuing occupied units at
contract rates and vacant units at market rents. Vacancy loss is
determined by valuing vacant units at current market rents. By
measuring vacant apartments at their market rents, Economic
Occupancy takes into account the fact that apartment homes of
different sizes and locations within a community have different
economic impacts on a community’s gross revenue.
Established Communities are
identified by the Company as communities where a comparison of
operating results from the prior year to the current year is
meaningful, as these communities were owned and had Stabilized
Operations, as defined below, as of the beginning of the respective
prior year period. Therefore, for 2015 operating results,
Established Communities are consolidated communities that have
Stabilized Operations as of January 1, 2014 and are not
conducting or planning to conduct substantial redevelopment
activities within the current year. Established Communities do not
include communities that are currently held for sale or planned for
disposition during the current year.
FFO is calculated by the Company in
accordance with the definition adopted by the Board of Governors of
the National Association of Real Estate Investment Trusts
(“NAREIT”). FFO is calculated by the Company as Net income or loss
attributable to common stockholders computed in accordance with
GAAP, adjusted for gains or losses on sales of previously
depreciated operating communities, cumulative effect of a change in
accounting principle, impairment write-downs of depreciable real
estate assets, write-downs of investments in affiliates which are
driven by a decrease in the value of depreciable real estate assets
held by the affiliate and depreciation of real estate assets,
including adjustments for unconsolidated partnerships and joint
ventures. Management generally considers FFO to be an appropriate
supplemental measure of operating performance because, by excluding
gains or losses related to dispositions of previously depreciated
operating communities and excluding real estate depreciation (which
can vary among owners of identical assets in similar condition
based on historical cost accounting and useful life estimates), FFO
can help one compare the operating performance of a company’s real
estate between periods or as compared to different companies. A
reconciliation of FFO to Net income attributable to common
stockholders is as follows (dollars in thousands):
Q4 Q4 Full
Year Full Year 2015 2014 2015 2014 Net income
attributable to common stockholders $ 155,428 $ 142,642 $ 742,038 $
683,567
Depreciation - real estate assets,
including discontinued operations and joint venture adjustments
126,824 115,592 486,019 449,769
Distributions to noncontrolling interests,
including discontinued operations
9 9 38 35
Gain on sale of unconsolidated entities
holding previously depreciated real estate assets
(2,633 ) (779 ) (33,580 ) (73,674 ) Gain on sale of previously
depreciated real estate assets (1) (9,474 ) (23,980 ) (115,625 )
(108,662 ) Impairment due to casualty loss — —
4,195 — FFO attributable
to common stockholders $ 270,154 $ 233,484 $
1,083,085 $ 951,035 Average shares outstanding
- diluted 137,349,671 132,677,639 134,593,177 131,237,502
Earnings per share - diluted $ 1.13 $ 1.08 $ 5.51
$ 5.21 FFO per common share - diluted $ 1.97
$ 1.76 $ 8.05 $ 7.25 (1) Full
Year 2014 includes the impact of the noncontrolling portion of the
gain on sale of community owned by Fund I that was consolidated for
financial reporting purposes.
Initial Year Market Cap Rate is
defined by the Company as Projected NOI of a single community for
the first 12 months of operations (assuming no repositioning), less
estimates for non-routine allowance of approximately $300 - $500
per apartment home, divided by the gross sales price for the
community. Projected NOI, as referred to above, represents
management’s estimate of projected rental revenue minus projected
operating expenses before interest, income taxes (if any),
depreciation and amortization. For this purpose, management’s
projection of operating expenses for the community includes a
management fee of 2.5% - 3.5%. The Initial Year Market Cap
Rate, which may be determined in a different manner by others, is a
measure frequently used in the real estate industry when
determining the appropriate purchase price for a property or
estimating the value for a property. Buyers may assign different
Initial Year Market Cap Rates to different communities when
determining the appropriate value because they (i) may project
different rates of change in operating expenses and capital
expenditure estimates and (ii) may project different rates of
change in future rental revenue due to different estimates for
changes in rent and occupancy levels. The weighted average Initial
Year Market Cap Rate is weighted based on the gross sales price of
each community.
Interest Coverage is calculated by
the Company as Core EBITDA divided by the sum of interest expense,
net, and preferred dividends, if applicable. Interest Coverage is
presented by the Company because it provides rating agencies and
investors an additional means of comparing our ability to service
debt obligations to that of other companies. EBITDA is defined
by the Company as net income or loss attributable to the Company
before interest income and expense, income taxes, depreciation and
amortization.
A reconciliation of Core EBITDA and a calculation of Interest
Coverage for the three months ended December 31, 2015 are as
follows (dollars in thousands):
Net income attributable to common stockholders $
155,428 Interest expense, net 42,217 Income tax expense 215
Depreciation expense 122,259 EBITDA $ 320,119
NOI from discontinued operations and real estate assets sold
or held for sale, not classified as discontinued operations (1,896
) Gain on sale of communities (9,474 ) EBITDA after
disposition activity $ 308,749 Joint venture income
(1,093 ) Casualty and impairment loss (gain), net 125 Lost NOI from
Edgewater fire 2,790 Other non-core adjustments (1) 335
Core EBITDA $ 310,906 Interest expense, net $
42,217 Interest Coverage 7.4 times
(1) Refer to the Core FFO definition included in this
release.
Net Debt-to-Core EBITDA is
calculated by the Company as total debt that is consolidated for
financial reporting purposes, less consolidated cash and cash in
escrow, divided by annualized fourth quarter 2015 Core EBITDA, as
adjusted. For a calculation of EBITDA to net income attributable to
common stockholders, see "Interest Coverage" above.
Total debt principal (1)
$ 6,481,291 Cash and cash in escrow (505,328 ) Net debt $ 5,975,963
Core EBITDA $ 310,906 Core EBITDA, annualized
$ 1,243,624 Net Debt-to-Core EBITDA 4.8 times
(1) Balance at December 31, 2015 excludes $7,601 of debt discount
and $21,725 of deferred financing costs as reflected in unsecured
notes, net, and $19,686 of debt premium and $14,703 of deferred
financing costs as reflected in notes payable, on the Condensed
Consolidated Balance Sheets. The debt premium is primarily related
to above market interest rates on debt assumed in connection with
the Archstone acquisition.
NOI is defined by the Company as
total property revenue less direct property operating expenses
(including property taxes), and excludes corporate-level income
(including management, development and other fees), corporate-level
property management and other indirect operating expenses,
investments and investment management expenses, expensed
development and other pursuit costs, net interest expense, gain
(loss) on extinguishment of debt, general and administrative
expense, joint venture income (loss), depreciation expense,
impairment loss on land holdings, gain on sale of real estate
assets, gain on sale of discontinued operations, income from
discontinued operations and NOI from real estate assets held for
sale or that have been sold. The Company considers NOI to be an
appropriate supplemental measure to Net Income of operating
performance of a community or communities because it helps both
investors and management to understand the core operations of a
community or communities prior to the allocation of corporate-level
property management overhead or general and administrative costs.
This is more reflective of the operating performance of a
community, and allows for an easier comparison of the operating
performance of single assets or groups of assets. In addition,
because prospective buyers of real estate have different overhead
structures, with varying marginal impact to overhead by acquiring
real estate, NOI is considered by many in the real estate industry
to be a useful measure for determining the value of a real estate
asset or groups of assets.
A reconciliation of NOI to Net Income, as well as a breakdown of
NOI by operating segment, is as follows (dollars in thousands):
Q4 Q4 Q3 Q2 Q1 Full Year
Full Year 2015 2014 2015 2015 2015 2015 2014 Net income $
155,352 $ 142,530 $ 206,076 $ 172,253 $ 208,053 $ 741,733 $ 697,327
Indirect operating expenses, net of corporate income 13,332 12,721
13,427 14,817 15,399 56,973 49,055 Investments and investment
management expense 1,096 1,290 1,167 1,073 1,034 4,370 4,485
Expensed acquisition, development and other pursuit costs, net of
recoveries 1,570 (6,855 ) 3,391 673 1,187 6,822 (3,717 ) Interest
expense, net 42,217 47,987 43,234 44,590 45,573 175,615 180,618
(Gain) loss on extinguishment of debt, net — — (18,987 ) (7,749 ) —
(26,736 ) 412 General and administrative expense 11,428 10,715
10,303 10,312 10,353 42,396 41,425 Joint venture income (1,093 )
(5,241 ) (20,554 ) (13,806 ) (34,566 ) (70,018 ) (148,766 )
Depreciation expense 122,259 114,084 120,184 118,627 116,853
477,923 442,682 Income tax expense 215 9,332 200 1,316 130 1,861
9,368 Casualty and impairment loss (gain), net 125 — 658 (17,114 )
5,788 (10,542 ) — Gain on sale of real estate assets (9,474 )
(24,470 ) (35,216 ) (9,625 ) (70,958 ) (125,272 ) (85,415 ) Gain on
sale of discontinued operations — — — — — — (37,869 ) Income from
discontinued operations — — — — — — (310 ) NOI from real estate
assets sold or held for sale, not classified as discontinued
operations (1,896 ) (5,339 ) (2,645 ) (3,158 ) (3,219 ) (10,920 )
(27,357 ) NOI $ 335,131 $ 296,754 $ 321,238 $
312,209 $ 295,627 $ 1,264,205 $ 1,121,938
Established: New England $ 32,128 $ 29,480 $ 31,188 $
29,911 $ 26,800 $ 120,026 $ 116,780 Metro NY/NJ 69,286 66,705
68,186 67,148 64,366 268,986 260,282 Mid-Atlantic 37,371 36,652
36,157 35,938 36,031 145,497 145,239 Pacific NW 14,219 12,853
13,502 13,657 13,373 54,751 50,621 No. California 54,761 47,645
53,095 52,635 49,734 210,226 187,900 So. California 45,356
41,125 43,139 42,493 42,931 173,919
158,927 Total Established 253,121 234,460
245,267 241,782 233,235 973,405
919,749 Other Stabilized 36,887 36,734 36,930 36,536 34,818
145,170 117,041 Development/Redevelopment 45,123 25,560
39,041 33,891 27,574 145,630
85,148 NOI $ 335,131 $ 296,754 $ 321,238
$ 312,209 $ 295,627 $ 1,264,205 $
1,121,938
NOI as reported by the Company does not include the operating
results from discontinued operations (i.e., assets sold or
classified as held for sale at December 31, 2013) or assets sold or
classified as held for sale (i.e., assets sold or classified as
held for sale at December 31, 2015 that are not otherwise
classified as discontinued operations). A reconciliation of NOI
from communities sold, classified as discontinued operations or
classified as held for sale, to Net Income for these communities is
as follows (dollars in thousands):
Q4 Q4 Full
Year Full Year 2015 2014 2015 2014 Income from
discontinued operations $ — $ — $ — $ 310 Depreciation expense —
— — — NOI from discontinued
operations $ — $ — $ — $ 310
Revenue from real estate assets sold or held for sale, not
classified as discontinued operations $ 2,988 $ 8,539 $ 17,973 $
44,645 Operating expenses from real estate assets sold or held for
sale, not classified as discontinued operations (1,092 ) (3,200 )
(7,053 ) (17,288 ) NOI from real estate assets sold or held
for sale, not classified as discontinued operations $ 1,896
$ 5,339 $ 10,920 $ 27,357
Other Stabilized Communities as of
January 1, 2015 are completed consolidated communities that the
Company owns, which did not have stabilized operations as of
January 1, 2014, but have stabilized occupancy as of January 1,
2015. Other Stabilized Communities as of January 1, 2015 do not
include communities that are planning to conduct substantial
redevelopment activities or that are under contract to be sold.
Projected FFO and Projected Core
FFO, as provided within this release in the Company’s
outlook, are calculated on a basis consistent with historical FFO
and Core FFO, and are therefore considered to be appropriate
supplemental measures to projected Net Income from projected
operating performance. A reconciliation of the ranges provided for
Projected FFO per share (diluted) for the first quarter and full
year of 2016 to the ranges provided for projected EPS (diluted) and
corresponding reconciliation of the ranges for Projected FFO per
share to the ranges for Core FFO per share are as follows:
Low High Range Range Projected EPS
(diluted) - Q1 2016 $ 1.73 $ 1.79 Projected depreciation (real
estate related) 0.92 0.96 Projected gain on sale of operating
communities (0.61 ) (0.65 ) Projected FFO per share (diluted) - Q1
2016 2.04 2.10 Joint venture costs (1) 0.03
0.03 Casualty and impairment gain, net (0.06 ) (0.06 ) Lost NOI
from casualty losses 0.01 0.01 Acquisition costs 0.01 0.01 Business
interruption insurance proceeds (0.15 ) (0.15 ) Projected Core FFO
per share (diluted) - Q1 2016 $ 1.88 $ 1.94
Projected EPS (diluted) - Full Year 2016 $ 6.86 $ 7.26 Projected
depreciation (real estate related) 3.71 3.91 Projected gain on sale
of operating communities (2.45 ) (2.65 ) Projected FFO per share
(diluted) - Full Year 2016 8.12 8.52 Joint
venture costs (1) 0.05 0.05 Casualty and impairment gain, net (0.06
) (0.06 ) Lost NOI from casualty losses 0.05 0.05 Abandoned
pursuits 0.01 0.01 Acquisition costs 0.01 0.01 Business
interruption insurance proceeds (0.15 ) (0.15 ) Projected Core FFO
per share (diluted) - Full Year 2016 $ 8.03 $ 8.43
(1) Amounts are composed primarily of the Company's portion
of yield maintenance charges incurred for the early repayment of
debt.
Projected NOI, as used within this
release for certain development communities and in calculating the
Initial Year Market Cap Rate for dispositions, represents
management’s estimate, as of the date of this release (or as of the
date of the buyer’s valuation in the case of dispositions), of
projected stabilized rental revenue minus projected stabilized
operating expenses. For development communities, Projected NOI is
calculated based on the first twelve months of Stabilized
Operations following the completion of construction. In calculating
the Initial Year Market Cap Rate, Projected NOI for dispositions is
calculated for the first twelve months following the date of the
buyer’s valuation. Projected stabilized rental revenue represents
management’s estimate of projected gross potential minus projected
stabilized economic vacancy and adjusted for projected stabilized
concessions plus projected stabilized other rental revenue.
Projected stabilized operating expenses do not include interest,
income taxes (if any), depreciation or amortization, or any
allocation of corporate-level property management overhead or
general and administrative costs. In addition, projected stabilized
operating expenses for development communities do not include
property management fee expense. Projected gross potential for
development communities and dispositions is based on leased rents
for occupied homes and management’s best estimate of rental levels
for homes which are currently unleased, as well as those homes
which will become available for lease during the twelve month
forward period used to develop Projected NOI. The weighted average
Projected NOI as a percentage of Total Capital Cost is weighted
based on the Company’s share of the Total Capital Cost of each
community, based on its percentage ownership.
Management believes that Projected NOI of the development
communities, on an aggregated weighted average basis, assists
investors in understanding management's estimate of the likely
impact on operations of the development communities when the assets
are complete and achieve stabilized occupancy (before allocation of
any corporate-level property management overhead, general and
administrative costs or interest expense). However, in this release
the Company has not given a projection of NOI on a company-wide
basis. Given the different dates and fiscal years for which NOI is
projected for these communities, the projected allocation of
corporate-level property management overhead, general and
administrative costs and interest expense to communities under
development is complex, impractical to develop, and may not be
meaningful. Projected NOI of these communities is not a projection
of the Company's overall financial performance or cash flow. There
can be no assurance that the communities under development or
redevelopment will achieve the Projected NOI as described in this
release.
Projected Stabilized Yield (also
expressed as “weighted average initial stabilized yield” or words
of similar meaning) means Projected NOI as a percentage of Total
Capital Cost.
Rental Revenue with Concessions on a Cash
Basis is considered by the Company to be a supplemental
measure to rental revenue in conformity with GAAP to help investors
evaluate the impact of both current and historical concessions on
GAAP-based rental revenue and to more readily enable comparisons to
revenue as reported by other companies. In addition, Rental Revenue
with Concessions on a Cash Basis allows an investor to understand
the historical trend in cash concessions.
A reconciliation of rental revenue from Established Communities
in conformity with GAAP to Rental Revenue with Concessions on a
Cash Basis is as follows (dollars in thousands):
Q4 Q4 Full
Year Full Year 2015 2014 2015 2014 Rental revenue
(GAAP basis) $ 352,598 $ 334,386 $ 1,382,895 $ 1,316,759
Concessions amortized 174 559 1,017 4,500 Concessions granted (271
) (272 ) (744 ) (3,089 )
Rental Revenue with Concessions on a Cash
Basis
$ 352,501 $ 334,673 $ 1,383,168 $ 1,318,170
% change -- GAAP revenue 5.4 % 5.0 % % change
-- cash revenue 5.3 % 4.9 %
Stabilized/Restabilized Operations
is defined as the earlier of (i) attainment of 95% physical
occupancy or (ii) the one-year anniversary of completion of
development or redevelopment.
Total Capital Cost includes all
capitalized costs projected to be or actually incurred to develop
the respective development or redevelopment community, or
development right, including land acquisition costs, construction
costs, real estate taxes, capitalized interest and loan fees,
permits, professional fees, allocated development overhead and
other regulatory fees, offset by proceeds from the sale of any
associated land or improvements, all as determined in accordance
with GAAP. For redevelopment communities, Total Capital Cost
excludes costs incurred prior to the start of redevelopment when
indicated. With respect to communities where development or
redevelopment was completed in a prior or the current period, Total
Capital Cost reflects the actual cost incurred, plus any
contingency estimate made by management. Total Capital Cost for
communities identified as having joint venture ownership, either
during construction or upon construction completion, represents the
total projected joint venture contribution amount. For joint
ventures not in construction, Total Capital Cost is equal to gross
real estate cost.
Unencumbered NOI as calculated by
the Company represents NOI generated by real estate assets
unencumbered by either outstanding secured debt or land leases
(excluding land leases with purchase options that were put in place
for governmental incentives or tax abatements) as a percentage of
total NOI generated by real estate assets. The Company believes
that current and prospective unsecured creditors of the Company
view Unencumbered NOI as one indication of the borrowing capacity
of the Company. Therefore, when reviewed together with the
Company’s Interest Coverage, EBITDA and cash flow from operations,
the Company believes that investors and creditors view Unencumbered
NOI as a useful supplemental measure for determining the financial
flexibility of an entity. A calculation of Unencumbered NOI for the
year ended December 31, 2015 is as follows (dollars in
thousands):
Full Year 2015 NOI NOI for Established Communities $
973,405 NOI for Other Stabilized Communities 145,170 NOI for
Development/Redevelopment Communities 145,630 NOI for discontinued
operations — NOI from real estate assets sold or held for sale, not
classified as discontinued operations 10,920 Total NOI
generated by real estate assets 1,275,125 NOI on encumbered assets
279,508 NOI on unencumbered assets $ 995,617
Unencumbered NOI 78 %
Unleveraged IRR on sold communities
refers to the internal rate of return calculated by the Company
considering the timing and amounts of (i) total revenue during the
period owned by the Company and (ii) the gross sales price net of
selling costs, offset by (iii) the undepreciated capital cost of
the communities at the time of sale and (iv) total direct operating
expenses during the period owned by the Company. Each of the items
(i), (ii), (iii) and (iv) is calculated in accordance with
GAAP.
The calculation of Unleveraged IRR does not include an
adjustment for the Company’s general and administrative expense,
interest expense, or corporate-level property management and other
indirect operating expenses. Therefore, Unleveraged IRR is not a
substitute for Net Income as a measure of our performance.
Management believes that the Unleveraged IRR achieved during the
period a community is owned by the Company is useful because it is
one indication of the gross value created by the Company’s
acquisition, development or redevelopment, management and sale of a
community, before the impact of indirect expenses and Company
overhead. The Unleveraged IRR achieved on the communities as cited
in this release should not be viewed as an indication of the gross
value created with respect to other communities owned by the
Company, and the Company does not represent that it will achieve
similar Unleveraged IRRs upon the disposition of other communities.
The weighted average Unleveraged IRR for sold communities is
weighted based on all cash flows over the investment period for
each respective community, including net sales proceeds.
Copyright © 2015 AvalonBay Communities, Inc.
All Rights Reserved
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version on businesswire.com: http://www.businesswire.com/news/home/20160203006550/en/
AvalonBay Communities, Inc.Jason Reilley, Senior Director of
Investor Relations703-317-4681
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