AvalonBay Communities, Inc. (NYSE: AVB) (the “Company”) reported
today that Net Income Attributable to Common Stockholders for the
three months ended September 30, 2016 was $356,392,000. This
resulted in an increase in Earnings per Share – diluted (“EPS”) of
69.3% to $2.59 for the three months ended September 30, 2016, from
$1.53 for the prior year period.
Funds from Operations attributable to common stockholders -
diluted (“FFO”) per share for the three months ended September 30,
2016 increased 4.5% to $2.11 from $2.02 for the prior year
period.
Core FFO per share for the three months ended September 30, 2016
increased 7.3% to $2.07 from $1.93 for the prior year period.
The changes in the Company's EPS, FFO per share and Core FFO per
share were due to an increase in Net Operating Income (“NOI”) from
newly developed and existing operating communities for the three
months ended September 30, 2016 over the prior year period,
partially offset by an increase in the average shares outstanding.
The changes in EPS and FFO per share were also due to the gain on
extinguishment of debt in the prior year period, as well as the
current year period gain from the contribution of a land parcel to
a joint venture. The change in EPS was also due to an increase in
wholly-owned real estate sales and related gains, partially offset
by a decrease in joint venture real estate sales and related gains
and an increase in depreciation expense.
The following table compares the Company’s actual results for
EPS, FFO per share and Core FFO per share for the third quarter of
2016 to its July 2016 outlook:
Third Quarter 2016 Results Comparison to July 2016
Outlook Per Share EPS
FFO Core FFO Projected per share - July
2016 outlook (1) $ 2.72 $ 2.17 $ 2.08 Established Community Opex
(0.01 ) (0.01 ) (0.01 ) Other community NOI (0.01 ) (0.01 ) (0.01 )
Interest expense 0.01 0.01 0.01 Timing of joint venture promote
income (0.03 ) (0.03 ) — Development pursuits and other write-offs
(0.02 ) (0.02 ) — Gain on sale of communities and depreciation
expense (2) (0.07 ) — — Q3 2016 per
share reported results $ 2.59 $ 2.11 $
2.07 (1) The mid-point of the Company's July 2016
outlook. (2) Consists primarily of timing differences for
disposition gains on wholly-owned and joint venture communities.
For the nine months ended September 30, 2016, EPS increased
31.2% to $5.76 from $4.39 for the prior year period. For the nine
months ended September 30, 2016, FFO per share increased 1.5% to
$6.17 from $6.08 for the prior year period. For the nine months
ended September 30, 2016, Core FFO per share increased 9.2% to
$6.07 from $5.56 for the prior year period.
Operating Results for the Three Months Ended
September 30, 2016 Compared to the Prior Year Period
For the Company, total revenue increased by $40,851,000, or
8.6%, to $516,211,000. This increase is primarily due to
growth in revenue from development communities and Established
Communities.
For Established Communities, Average Rental Rates increased
3.9%, and were partially offset by a decrease in Economic Occupancy
of 0.1%, resulting in an increase in rental revenue of 3.8%. If the
Company were to include current and previously completed
redevelopment communities as part of its Established Communities
portfolio, the increase in Established Communities' rental revenue
would have been 3.9%. Total revenue for Established Communities
increased $13,819,000, or 3.7%, to $389,050,000. Operating expenses
for Established Communities increased $2,561,000, or 2.2%, to
$117,476,000. NOI for Established Communities increased
$11,258,000, or 4.3%, to $271,574,000.
The following table reflects the percentage changes in rental
revenue, operating expenses and NOI for Established Communities for
the three months ended September 30, 2016 compared to the three
months ended September 30, 2015:
Q3 2016 Compared to Q3 2015 Rental Revenue
Avg Rent Ec % of
Rates
Occ
Opex (1)
NOI
NOI (2)
New England 2.5 % 0.2 % 5.9 % 0.6 % 14.2 % Metro NY/NJ 2.3 % 0.2 %
4.4 % 1.5 % 24.7 % Mid-Atlantic 2.0 % (0.3 )% 3.1 % 0.4 % 14.7 %
Pacific NW 5.7 % 0.4 % (0.6 )% 9.5 % 5.6 % No. California 5.8 %
(0.2 )% 4.6 % 5.9 % 20.9 % So. California 6.0 % (0.4 )% (6.0 )%
11.1 % 19.9 % Total 3.9 % (0.1 )% 2.2 % 4.3 % 100.0 % (1)
See the full release for discussion of variances. (2)
Represents each region's % of total NOI for Q3 2016, including
amounts related to communities that have been sold or that are
classified as held for sale.
Operating Results for the Nine Months Ended
September 30, 2016 Compared to the Prior Year Period
For the Company, total revenue increased by $151,828,000, or
11.0%, to $1,527,015,000. This increase is primarily due to
growth in revenue from development communities and Established
Communities, coupled with business interruption insurance
proceeds.
For Established Communities, Average Rental Rates increased
4.9%, and were partially offset by a decrease in Economic Occupancy
of 0.2%, resulting in an increase in rental revenue of 4.7%. If the
Company were to include current and previously completed
redevelopment communities as part of its Established Communities
portfolio, the increase in Established Communities' rental revenue
would have been 4.8%. Total revenue for Established Communities
increased $50,811,000, or 4.6%, to $1,149,093,000. Operating
expenses for Established Communities increased $8,450,000, or 2.5%,
to $343,319,000. NOI for Established Communities increased
$42,361,000, or 5.5%, to $805,774,000.
The following table reflects the percentage changes in rental
revenue, operating expenses and NOI for Established Communities for
the nine months ended September 30, 2016 compared to the nine
months ended September 30, 2015:
YTD 2016 Compared to YTD 2015 Rental Revenue
Avg Rent Ec % of
Rates
Occ
Opex (1)
NOI
NOI (2)
New England 3.9 % (0.2 )% (0.1 )% 5.9 % 14.3 % Metro NY/NJ 2.9 %
0.1 % 4.8 % 2.0 % 24.3 % Mid-Atlantic 1.7 % (0.2 )% 1.3 % 1.4 %
15.0 % Pacific NW 6.4 % (0.2 )% 5.3 % 6.6 % 5.3 % No. California
8.3 % (0.4 )% 7.4 % 8.0 % 21.0 % So. California 6.9 % (0.3 )% (1.6
)% 10.3 % 20.1 % Total 4.9 % (0.2 )% 2.5 % 5.5 % 100.0 % (1)
See the full release for discussion of variances. (2)
Represents each region's % of total NOI for YTD 2016, including
amounts related to communities that have been sold or that are
classified as held for sale.
Development Activity
During the three months ended September 30, 2016, the Company
engaged in the following development activity:
The Company completed the development of two communities:
- Avalon Dublin Station II, located in
Dublin, CA; and
- Avalon Alderwood II, located in
Lynnwood, WA.
These two communities contain an aggregate of 376 apartment
homes and were constructed for an aggregate Total Capital Cost of
$111,200,000.
The Company started the construction of Avalon Boonton, located
in Boonton, NJ. Avalon Boonton will contain 350 apartment homes
when completed and will be developed for an estimated Total Capital
Cost of $91,200,000.
The Company added one development right which, if developed as
expected, will contain 200 apartment homes and will be developed
for an estimated Total Capital Cost of $95,000,000.
The projected Total Capital Cost of overall development rights
decreased to $3.9 billion at September 30, 2016 from $4.0
billion at June 30, 2016.
Acquisition Activity
In September 2016, the Company acquired two communities.
- Avalon Columbia Pike, located in
Arlington, VA, contains 269 apartment homes and 27,000 square feet
of retail space, and was acquired for a purchase price of
$102,000,000, which includes the assumption of a fixed rate
mortgage loan secured by the community in the amount of
$70,507,000. The mortgage loan has a 3.38% contractual interest
rate and matures in November 2019.
- Studio 77, located in North Hollywood,
CA, contains 156 apartment homes and 11,000 square feet of retail
space, and was acquired for a purchase price of $72,100,000.
Disposition Activity
During the three months ended September 30, 2016, the Company
sold three wholly-owned communities: Eaves Nanuet, located in
Nanuet, NY, Avalon Shrewsbury, located in Shrewsbury, MA and Avalon
at Freehold, located in Freehold, NJ. In the aggregate, the three
communities contain 1,051 apartment homes and were sold for
$275,500,000, resulting in a gain in accordance with GAAP of
$197,840,000 and an Economic Gain of $140,148,000. These
communities generated an Unleveraged IRR of 13.6% over a weighted
average investment period of 15.1 years.
In October 2016, the Company sold Avalon Brandemoor I and II,
located in Lynnwood, WA. The two wholly-owned communities contain
an aggregate of 506 apartment homes and were sold for
$132,000,000.
Liquidity and Capital Markets
At September 30, 2016, the Company had $170,000,000 in
borrowings outstanding under its $1,500,000,000 unsecured credit
facility, and had $232,188,000 in unrestricted cash and cash in
escrow.
The Company’s annualized Net Debt-to-Core EBITDA for the third
quarter of 2016 was 5.1 times.
During the three months ended September 30, 2016, the Company
repaid $250,000,000 principal amount of its 5.75% coupon unsecured
notes pursuant to its scheduled maturity.
In October 2016, the Company issued the following unsecured
notes in public offerings under its existing shelf registration
statement.
- $300,000,000 principal amount of
unsecured notes were issued for net proceeds of approximately
$297,117,000. The notes mature in October 2026 and were issued at a
2.90% coupon interest rate.
- $350,000,000 principal amount of
unsecured notes were issued for net proceeds of approximately
$345,520,000. The notes mature in October 2046 and were issued at a
3.90% coupon interest rate.
In October 2016, the Company issued a redemption notice for
$250,000,000 principal amount of its 5.70% coupon unsecured notes
in advance of the March 2017 scheduled maturity. The Company
expects to complete the redemption of the unsecured notes in the
fourth quarter of 2016.
Unconsolidated Real Estate Investments
During the three months ended September 30, 2016, the Company
entered into a joint venture to develop, own and operate AVA North
Point, a 265 apartment home community in Cambridge, MA, which is
expected to be developed for a Total Capital Cost to the joint
venture of $113,900,000. AVA North Point is the third phase of a
master planned development, the other phases of which are owned
through a joint venture structure that the Company acquired an
interest in as part of the Archstone acquisition, as described in
the Company’s first quarter 2013 earnings release dated April 30,
2013. The Company contributed the land parcel to the venture,
recognizing a gain of $10,621,000. The Company owns a 55.0%
interest in the venture that owns AVA North Point.
Also during the three months ended September 30, 2016, the
Company and its venture partner established separate legal
ownership of the residential and retail components of the mixed-use
development containing Avalon Clarendon, which was acquired in May
2016. As a result the Company consolidated Avalon Clarendon and
beginning in October 2016, the Company will report the operating
results of the community as part of its consolidated operations. In
conjunction with the consolidation of Avalon Clarendon, the Company
recorded a gain of $4,322,000, included as a component of gain on
sale of communities, representing the amount that the fair value of
the Company's prior interest exceeded its carrying value, primarily
attributable to depreciation recognized during the period the
community was owned in the joint venture.
Fourth Quarter and Updated Full Year 2016 Financial
Outlook
For its fourth quarter and full year 2016 financial outlook, the
Company expects the following:
Projected EPS, Projected FFO and Projected Core FFO
Outlook (1) Q4 2016 Full Year 2016
Low
High
Low
High
Projected EPS $ 1.77 - $ 1.83 $ 7.53 - $ 7.59 Projected FFO
per share $ 2.06 - $ 2.12 $ 8.23 - $ 8.29 Projected Core FFO per
share (1) $ 2.08 - $ 2.14 $ 8.15 - $ 8.21 (1) See
Definitions and Reconciliations of this release for reconciliation
of Projected FFO per share and Projected Core FFO per share to
Projected EPS.
Full Year 2016 Revised Financial
Outlook October 2016 July 2016
Low
High
Low
High
Established Communities: Rental revenue change
4.25
% -
4.5
% 4.25 % - 4.75 % Operating expense change 2.9 % - 3.3 % 2.0 % -
2.75 % NOI change 4.6 % - 5.0 % 5.0 % - 5.75 %
The following table compares the Company's October 2016 outlook
for EPS, FFO per share and Core FFO per share for the full year
2016 to its July 2016 outlook:
October 2016 Full Year Outlook Comparison to July
2016 Outlook Per Share EPS
FFO Core FFO Projected per share
- July 2016 outlook (1) $ 7.58 $ 8.36 $ 8.23 Q3 2016 Results (2)
(0.13 ) (0.06 ) (0.01 ) Established Community revenue (0.01 ) (0.01
) (0.01 ) Established Community Opex (0.01 ) (0.01 ) (0.01 ) Other
community NOI (0.01 ) (0.01 ) (0.01 ) Interest expense (0.05 )
(0.05 ) (0.01 ) Joint venture income, management fees and overhead
0.04 0.04 — Gain on sale of communities and depreciation expense
0.15 — — Projected per share -
October 2016 outlook (1) $ 7.56 $ 8.26
$ 8.18 (1) The mid-point of the Company's outlook.
(2) Amount represents the difference between the July 2016
outlook and actual results. See page 1 of this release for details.
Fourth Quarter Conference Schedule
The Company is scheduled to participate in the NAREIT's
REITWorld Conference in Phoenix, AZ, from November 15-17, 2016.
During this conference, management may discuss the Company’s
current operating environment; operating trends; development,
redevelopment, disposition and acquisition activity; portfolio
strategy and other business and financial matters affecting the
Company. Details on how to access related materials will be
available on the Company’s website at http://www.avalonbay.com/events one business day
in advance of the conference.
Other Matters
The Company will hold a conference call on October 25, 2016 at
11:00 AM ET to review and answer questions about this release, its
third quarter 2016 results, the Attachments (described below) and
related matters. To participate on the call, dial 800-474-8920
domestically and 719-457-2643 internationally and use conference
id: 7799607.
To hear a replay of the call, which will be available from
October 25, 2016 at 4:00 PM ET to November 1, 2016 at 4:00 PM ET,
dial 888-203-1112 domestically and 719-457-0820 internationally and
use conference id: 7799607. 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
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 October 25, 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 September 30, 2016, the Company owned or held a
direct or indirect ownership interest in 283 apartment communities
containing 82,708 apartment homes in 10 states and the District of
Columbia, of which 22 communities were under construction and eight
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: 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; and 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 casualty loss at Avalon at
Edgewater ("Edgewater") are subject to change and could materially
affect the Company's current expectations regarding the impact of
the fire. 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, 2015 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 13, “Definitions and Reconciliations of Non-GAAP
Financial Measures and Other Terms.” Attachment 13 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.
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 based on their respective final
settlement statements. A reconciliation of Economic Gain (Loss) to
gain on sale in accordance with GAAP for the nine months ended
September 30, 2016 as well as prior years’ activities is presented
elsewhere 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
consolidated 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 2016 operating results, Established Communities are
consolidated communities that have Stabilized Operations as of
January 1, 2015, are not conducting or planning to conduct
substantial redevelopment activities and are not held for sale or
planned for disposition within the current year.
FFO and Core FFO are considered by
management to be supplemental measures of our operating and
financial performance. 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. 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 and
financial performance of a company’s real estate between periods or
as compared to different companies. Core FFO is the Company's FFO
as adjusted for non-core items outlined in the table below. By
further adjusting for items that are not considered part of our
core business operations, Core FFO can help one compare the core
operating and financial performance of the Company between periods.
A reconciliation Net income attributable to common stockholders to
FFO and to Core FFO is as follows (dollars in thousands):
Q3 Q3 YTD YTD 2016 2015 2016
2015 Net income attributable to common stockholders $
356,392 $ 206,142 $ 791,767 $ 586,610 Depreciation - real estate
assets, including discontinued operations and joint venture
adjustments 135,275 121,018 397,834 359,195 Distributions to
noncontrolling interests, including discontinued operations 10 9 30
28 Gain on sale of unconsolidated entities holding previously
depreciated real estate — (20,074 ) (53,172 ) (30,947 ) Gain on
sale of previously depreciated real estate (202,163 ) (35,216 )
(284,582 ) (106,151 ) Casualty and impairment (recovery) loss, net
on real estate (1)(5) — — (4,195 ) 4,195 FFO
attributable to common stockholders 289,514 271,879 847,682 812,930
Adjusting items: Joint venture losses (gains) (2) 195 1,611
5,763 (8,671 ) Impairment loss on real estate (3)(5) — — 10,500 800
Casualty loss (gain), net on real estate (4)(5) — 658 (10,239 )
(15,663 )
Business interruption insurance
proceeds
(78
)
(357
)
(20,422
)
(511
)
Lost NOI from casualty losses covered by business interruption
insurance (6) 1,877 1,738 5,580 5,072 (Gain) loss on extinguishment
of consolidated debt — (18,987 ) 2,461 (26,736 ) Acquisition costs
635 2,514 2,564 3,454 Severance related costs 346 120 907 1,784
Development pursuit and other write-offs 2,998 609 3,769 1,072
Joint venture promote (7) — — (3,447 ) (21,969 ) Gain on sale of
other real estate (10,778 ) — (10,921 ) (9,647 ) Income taxes —
— — 997 Core FFO attributable to common
stockholders $ 284,709 $ 259,785 $ 834,197 $
742,912 Average shares outstanding - diluted
137,505,054 134,709,460 137,442,306 133,663,770 Earnings per
share - diluted $ 2.59 $ 1.53 $ 5.76 $ 4.39
FFO per common share - diluted $ 2.11 $ 2.02 $
6.17 $ 6.08 Core FFO per common share - diluted $
2.07 $ 1.93 $ 6.07 $ 5.56 (1) In
2015, the Company recognized an impairment on depreciable real
estate of $4,195 from the severe winter storms that occurred in the
Company’s Northeast markets. The Company received insurance
proceeds in 2016, net of additional costs incurred, of $5,732
related to the winter storms, $4,195 of this recovery is recognized
as an offset to the loss incurred in the prior year period. The
balance of the net insurance proceeds received in 2016 of $1,537 is
recognized as a casualty gain and is included in the reconciliation
of FFO to Core FFO. (2) Amount for YTD 2016 is primarily
composed of the Company's portion of yield maintenance charges
incurred for the early repayment of debt associated with joint
venture disposition activity and the write-off of asset management
fee intangibles primarily associated with the disposition of
communities in the U.S. Fund. Amount for YTD 2015 is primarily
composed of the Company's proportionate share of gains and
operating results for joint ventures formed with Equity Residential
as part of the Archstone acquisition. (3) Amounts include
impairment charges relating to ancillary land parcels. (4)
Amount for YTD 2016 includes $8,702 in property damage insurance
proceeds for the Edgewater casualty loss, and $1,537 in property
damage insurance proceeds in excess of the total recognized loss
related to severe winter storms in the Company's Northeast markets
that occurred in 2015. Amount for Q3 2015 consists of demolition
and additional incident expenses for the Edgewater casualty loss
and amount for YTD 2015 includes $44,142 of Edgewater insurance
proceeds received partially offset by $28,479 for the write-off of
real estate and related costs. (5) Aggregate impact of (i)
Casualty and impairment (recovery) loss, net on real estate, (ii)
Impairment loss on real estate and (iii) Casualty loss (gain), net
on real estate for YTD 2016, is a gain of $3,935. (6)
Amounts relate to a casualty event at Edgewater in Q1 2015, for
which the Company received $20,306 in business interruption
insurance proceeds in Q1 2016. (7) Amount for YTD 2016 is
composed of the Company's recognition of its promoted interest in
Fund II. Amount for YTD 2015 is primarily composed of a joint
venture partner's buyout of the Company's promoted interest in
future distributions of MVP I, LLC.
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 September 30, 2016 are as
follows (dollars in thousands):
Net income attributable to common
stockholders $ 356,392 Interest expense, net 47,871 Income tax
expense 22 Depreciation expense 131,729 EBITDA $ 536,014
NOI from real estate assets sold or held for sale
(5,525 ) Gain on sale of communities (202,163 ) Gain on sale of
other real estate (10,778 ) Joint venture loss 342
Consolidated EBITDA after disposition activity $ 317,890
Lost NOI from casualty losses 1,877 Business interruption
insurance proceeds (78 ) Acquisition costs 635 Severance related
costs 346 Development pursuit and other write-offs 2,998
Core EBITDA $ 323,668 Interest expense, net $ 47,871
Interest Coverage 6.8 times
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 third quarter 2016 Core EBITDA, as
adjusted. For a calculation of Core EBITDA, see "Interest Coverage"
above.
Total debt principal (1) $ 6,851,379
Cash and cash in escrow (232,188 ) Net debt $ 6,619,191
Core EBITDA $ 323,668 Core EBITDA, annualized $
1,294,672 Net Debt-to-Core EBITDA 5.1 times (1)
Balance at September 30, 2016 excludes $6,882 of debt discount and
$22,871 of deferred financing costs as reflected in unsecured
notes, net, and $6,501 of debt premium and $12,157 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 excluding corporate-level income
(including management, development and other fees), corporate-level
property management and other indirect operating expenses,
investments and investment management expenses, expensed
acquisition, development and other pursuit costs, net of
recoveries, interest expense, net, (gain) loss on extinguishment of
debt, net, general and administrative expense, joint venture (loss)
income, depreciation expense, corporate income tax expense,
casualty and impairment loss (gain), net, gain on sale of real
estate assets and net operating income from real estate assets sold
or held for sale. The Company considers NOI to be an important and
appropriate supplemental performance 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
any corporate-level property management overhead or
financing-related costs. NOI reflects the operating
performance of a community, and allows for an easier comparison of
the operating performance of individual assets or groups of assets.
In addition, because prospective buyers of real estate have
different financing and overhead structures, with varying marginal
impact to overhead as a result of 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):
Q3 Q3 Q2 Q1 Q4 YTD
YTD 2016 2015 2016 2016 2015 2016 2015 Net income $ 356,329
$ 206,076 $ 197,319 $ 237,877 $ 155,352 $ 791,525 $ 586,381
Indirect operating expenses, net of corporate income 14,946 13,427
15,477 16,537 13,332 46,960 43,642 Investments and investment
management expense 1,205 1,167 1,194 1,145 1,096 3,545 3,274
Expensed acquisition, development and other pursuit costs, net of
recoveries 3,804 3,391 1,436 3,462 1,570 8,702 5,251 Interest
expense, net 47,871 43,234 46,581 43,410 42,217 137,862 133,398
(Gain) loss on extinguishment of debt, net — (18,987 ) 2,461 — —
2,461 (26,736 ) General and administrative expense 11,928 10,464
12,011 11,404 11,508 35,343 31,266 Joint venture loss (income) 342
(20,554 ) (27,151 ) (27,969 ) (1,093 ) (54,779 ) (68,925 )
Depreciation expense 131,729 120,184 132,469 127,216 122,259
391,414 355,664 Income tax expense 22 39 36 37 135 95 1,348
Casualty and impairment loss (gain), net — 658 (1,732 ) (2,202 )
125 (3,935 ) (10,668 ) Gain on sale of real estate (212,941 )
(35,216 ) (31,133 ) (51,430 ) (9,474 ) (295,503 ) (115,798 ) NOI
from real estate assets sold or held for sale (1) (5,525 ) (9,180 )
(6,731 ) (7,495 ) (8,833 ) (19,751 ) (28,248 ) NOI $ 349,710
$ 314,703 $ 342,237 $ 351,992 $ 328,194
$ 1,043,939 $ 909,849 Established: New England
$ 37,657 $ 37,427 $ 37,170 $ 36,670 $ 38,293 $ 111,497 $ 105,250
Metro NY/NJ 65,299 64,360 64,970 62,732 66,051 193,001 189,285
Mid-Atlantic 40,029 39,860 40,530 40,063 41,210 120,623 118,950
Pacific NW 14,502 13,239 14,173 14,078 13,903 42,753 40,092 No.
California 61,560 58,137 60,850 60,248 59,354 182,658 169,148 So.
California 52,527 47,293 51,301 51,415
49,572 155,242 140,688 Total Established
271,574 260,316 268,994 265,206 268,383
805,774 763,413 Other Stabilized (2) 34,812
29,116 35,091 55,114 30,042 125,017 76,466
Development/Redevelopment 43,324 25,271 38,152
31,672 29,769 113,148 69,970 NOI $
349,710 $ 314,703 $ 342,237 $ 351,992 $
328,194 $ 1,043,939 $ 909,849 (1)
Represents NOI from real estate assets sold or held for sale that
are not otherwise classified as discontinued operations. (2)
NOI for Q1 2016 and YTD 2016 Other Stabilized Communities includes
$20,306 of business interruption insurance proceeds related to the
Edgewater casualty loss.
NOI as reported by the Company does not include the operating
results from assets sold or classified as held for sale (i.e.,
assets sold or classified as held for sale at September 30,
2016 that are not otherwise classified as discontinued operations).
A reconciliation of NOI from communities sold or classified as held
for sale is as follows (dollars in thousands):
Q3 Q3 YTD
YTD 2016 2015 2016 2015 Revenue from real estate
assets sold or held for sale $ 8,814 $ 15,098 $ 31,731 $ 46,610
Operating expenses from real estate assets sold or held for sale
(3,289 ) (5,918 ) (11,980 ) (18,362 ) NOI from real estate assets
sold or held for sale $ 5,525 $ 9,180 $ 19,751
$ 28,248
Other Stabilized Communities are
completed consolidated communities that the Company owns, which
have Stabilized Operations as of January 1, 2016. Other
Stabilized Communities do not include communities that are
conducting or planning to conduct substantial redevelopment
activities.
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 fourth quarter and
full year 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) - Q4 2016 $ 1.77 $ 1.83 Depreciation (real estate
related) 0.97 1.01 Gain on sale of communities (0.68 ) (0.72 )
Projected FFO per share (diluted) - Q4 2016 2.06 2.12
Joint venture losses, development pursuit and other
write-offs, acquisition costs and severance related costs (0.03 )
(0.03 )
Lost NOI from casualty losses covered by
business interruption insurance
0.01 0.01 Loss on extinguishment of consolidated debt 0.04
0.04 Projected Core FFO per share (diluted) - Q4 2016 $ 2.08
$ 2.14 Projected EPS (diluted) - Full Year
2016 $ 7.53 $ 7.59 Depreciation (real estate related) 3.83 3.87
Gain on sale of communities (3.13 ) (3.17 ) Projected FFO per share
(diluted) - Full Year 2016 8.23 8.29 Joint
venture losses, development pursuit and other write-offs,
acquisition costs and severance related costs 0.05 0.05 Gain on
sale of other real estate (0.08 ) (0.08 )
Lost NOI from casualty losses covered by
business interruption insurance
0.05 0.05 Loss on extinguishment of consolidated debt 0.05 0.05
Business interruption insurance proceeds (0.15 ) (0.15 ) Projected
Core FFO per share (diluted) - Full Year 2016 $ 8.15 $ 8.21
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 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):
Q3 Q3 YTD YTD 2016 2015
2016 2015 Rental revenue (GAAP basis) $ 388,615 $ 374,390 $
1,147,985 $ 1,096,523 Concessions amortized 317 493 722 2,266
Concessions granted (443 ) (169 ) (964 ) (678 )
Rental Revenue with Concessions on a Cash
Basis
$ 388,489 $ 374,714 $ 1,147,743 $ 1,098,111
% change -- GAAP revenue 3.8 % 4.7 % % change
-- cash revenue 3.7 % 4.5 %
Stabilized Operations/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 outstanding secured debt 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
nine months ended September 30, 2016 is as follows (dollars in
thousands):
Year to Date NOI NOI for Established
Communities $ 805,774 NOI for Other Stabilized Communities (1)
125,017 NOI for Development/Redevelopment Communities 113,148 NOI
from real estate assets sold or held for sale 19,751 Total
NOI generated by real estate assets 1,063,690 NOI on encumbered
assets 208,986 NOI on unencumbered assets $ 854,704
Unencumbered NOI 80 % (1) NOI for Other Stabilized
Communities includes $20,306 of business interruption insurance
proceeds related to the Edgewater casualty loss.
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 © 2016 AvalonBay Communities, Inc.
All Rights Reserved
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version on businesswire.com: http://www.businesswire.com/news/home/20161024006474/en/
AvalonBay Communities, Inc.Jason Reilley, Senior Director of
Investor Relations703-317-4681
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