AvalonBay Communities, Inc. (NYSE:AVB) (the “Company”) reported
today that Net Income Attributable to Common Stockholders for the
three months ended March 31, 2021 was $142,223,000. This resulted
in a decrease in Earnings per Share – diluted (“EPS”) for the three
months ended March 31, 2021 of 14.3% to $1.02 from $1.19 for the
prior year period, primarily attributable to a decrease in
Established Community Residential NOI, as detailed in the table
below.
Funds from Operations attributable to common stockholders -
diluted (“FFO”) per share for the three months ended March 31, 2021
decreased 14.9% to $1.94 from $2.28 for the prior year period. Core
FFO per share (as defined in this release) for the three months
ended March 31, 2021 decreased 18.4% to $1.95 from $2.39 for the
prior year period.
The following table compares the Company’s actual results for
EPS, FFO per share and Core FFO per share for the three months
ended March 31, 2021 to its results for the prior year period:
Q1 2021 Results Compared to Q1
2020
Per Share (1)
EPS
FFO
Core FFO
Q1 2020 per share reported results
$
1.19
$
2.28
$
2.39
Established Community Residential NOI
(2)
(0.39
)
(0.39
)
(0.39
)
Development and Other Stabilized Community
Residential NOI
0.04
0.04
0.04
Commercial NOI
(0.01
)
(0.01
)
(0.01
)
Capital markets and transaction
activity
—
0.01
(0.05
)
Joint venture income
(0.01
)
(0.01
)
(0.01
)
Overhead and other
0.01
0.01
(0.02
)
Income taxes
0.01
0.01
—
Gain on sale of real estate and
depreciation expense
0.18
—
—
Q1 2021 per share reported results
$
1.02
$
1.94
$
1.95
(1) For additional detail on reconciling
items between EPS, FFO and Core FFO, see Definitions and
Reconciliations, table 2.
(2) Established Community uncollectible
Residential and Commercial lease revenue increased $0.09 over the
prior year period.
The following table compares the Company’s actual results for
EPS, FFO per share and Core FFO per share for the first quarter of
2021 to its February 2021 outlook:
Q1 2021 Results Compared to
February 2021 Outlook
Per Share (1)
EPS
FFO
Core FFO
Projected per share - February 2021
outlook (1)
$
0.96
$
1.86
$
1.90
Established Community Residential NOI
0.03
0.03
0.03
Commercial and other Residential NOI
0.02
0.02
0.02
Capital markets and transaction
activity
0.02
0.02
—
Income taxes
0.01
0.01
—
Gain on sale of real estate and
depreciation expense
(0.02
)
—
—
Q1 2021 per share reported results
$
1.02
$
1.94
$
1.95
(1) The mid-point of the Company's
February 2021 outlook.
Established Communities Operating Results for the Three
Months Ended March 31, 2021 Compared to the Prior Year
Period
For Established Communities, total revenue decreased
$50,375,000, or 9.1%, to $502,258,000. Residential revenue
decreased $49,570,000, or 9.1%, to $497,435,000, with uncollectible
lease revenue contributing $12,428,000 of this decrease.
Residential rental revenue for Established Communities decreased
9.1%, as detailed in the following table:
Established Communities Change
in Residential Rental Revenue
Q1 2021 Compared to Q1
2020
Residential rental revenue
Lease rates
(3.6
)%
Concessions and other discounts
(2.4
)%
Economic occupancy
(0.6
)%
Other rental revenue
(0.2
)%
Uncollectible lease revenue (1)
(2.3
)%
Total Residential rental revenue
(9.1
)%
(1) Uncollectible lease revenue increased
to 3.14% of total residential revenue, as compared to 0.67% of
total residential revenue for the prior year period.
Residential operating expenses for Established Communities
increased $4,973,000, or 3.2%, to $161,818,000 and Residential NOI
for Established Communities decreased $54,543,000, or 14.0%, to
$335,617,000.
The following table presents percentage changes in Residential
rental revenue, Residential operating expenses and Residential NOI
for Established Communities for the three months ended March 31,
2021 compared to the three months ended March 31, 2020:
Q1 2021 Compared to Q1
2020
Residential
Rental Revenue (1)
Opex (2)
NOI
% of NOI (3)
New England
(6.8
)%
1.8
%
(11.2
)%
14.2
%
Metro NY/NJ
(7.4
)%
0.5
%
(10.8
)%
22.8
%
Mid-Atlantic
(7.9
)%
6.0
%
(13.3
)%
15.8
%
Southeast FL
(3.5
)%
(9.7
)%
1.6
%
1.3
%
Denver, CO
9.3
%
(10.7
)%
20.3
%
1.1
%
Pacific NW
(8.3
)%
9.1
%
(15.3
)%
6.2
%
No. California
(15.3
)%
5.4
%
(21.6
)%
18.4
%
So. California
(8.7
)%
3.6
%
(13.6
)%
20.2
%
Total
(9.1
)%
3.2
%
(14.0
)%
100.0
%
(1) See full release for additional
detail.
(2) See full release for discussion of
variances.
(3) Represents % of total NOI for Q1 2021,
including amounts related to communities that have been sold or
that are classified as held for sale.
COVID-19 Operational Update
Established Communities Collections Update
The following table provides an update for Residential revenue
collections for Established Communities for Q2 2020 through Q1 2021
as of each respective quarter end, as well as through April 27,
2021 for the periods presented. Collected residential revenue is
the portion of apartment base rent charged to residents and other
rentable items, including parking and storage rent, along with pet
and other fees in accordance with residential leases, that has been
collected ("Collected Residential Revenue"), and excludes
transactional and other fees.
Established Communities
Collections (1)
Collected Residential
Revenue
At quarter end (2)
At April 27, 2021
(3)(4)
Q2 2020
95.4
%
98.3
%
Q3 2020
95.1
%
97.5
%
Q4 2020
94.8
%
96.8
%
Q1 2021
94.8
%
95.7
%
(1) Collections are for the Company’s 2021
Established Communities and exclude commercial revenue, which was
0.6% and 1.1% of the Company's 2020 and 2019 Established
Communities' total revenue, respectively.
(2) The Collected Residential Revenue
percentage as of June 30, 2020 for Q2 2020, September 30, 2020 for
Q3 2020, December 31, 2020 for Q4 2020 and March 31, 2021 for Q1
2021, respectively.
(3) The percentage of Collected
Residential Revenue as of April 27, 2021.
(4) Collected Residential Revenue for
April 2021 as of April 27, 2021 was 92.8%, which is 95.1% of the
AVB Residential Benchmark.
For further discussion of collection rates and limitations on
use of this data, see "Established Communities Collections," in
Definitions and Reconciliations.
Development Activity
During the three months ended March 31, 2021, the Company
completed the development of three consolidated apartment
communities:
- Avalon Yonkers, located in Yonkers, NY;
- AVA Hollywood, located in Hollywood, CA; and
- Avalon Acton II, located in Acton, MA.
These communities contain an aggregate of 1,371 apartment homes
and 19,000 square feet of commercial space and were constructed for
a Total Capital Cost of $602,000,000.
At March 31, 2021, the Company had 13 consolidated Development
Communities under construction that in the aggregate are expected
to contain 3,757 apartment homes and 43,000 square feet of
commercial space. Estimated Total Capital Cost at completion for
these Development Communities is $1,349,000,000.
At March 31, 2021, the Company had two Unconsolidated
Development Communities under construction that in the aggregate
are expected to contain 803 apartment homes and 56,000 square feet
of commercial space.
During the three months ended March 31, 2021, the Company
acquired land for the future development of four apartment
communities for an aggregate investment of $52,366,000.
Acquisition Activity
In April 2021, the Company acquired Avalon Arundel Crossing
East, a wholly-owned operating community, located in Linthicum
Heights, MD, adjacent to the Company's Avalon Arundel Crossing
operating community. Avalon Arundel Crossing East contains 384
apartment homes and was acquired for a purchase price of
$119,000,000.
Disposition Activity
Consolidated Apartment Communities
During the three months ended March 31, 2021, the Company sold
eaves Stamford, a wholly-owned operating community, located in
Stamford, CT. eaves Stamford contains 238 apartment homes and was
sold for $72,000,000, resulting in a gain in accordance with GAAP
of $53,775,000 and an Economic Gain of $25,517,000.
During the three months ended March 31, 2021, the Company sold
10 of the 172 residential condominiums at The Park Loggia, located
in New York, NY, for gross proceeds of $14,609,000, and leased an
additional 12,000 square feet of commercial space. As of March 31,
2021, 80 of the 172 residential condominiums have been sold and 87%
of the 66,000 square feet of commercial space has been leased. In
addition, subsequent to quarter end and through the date of this
release, the Company sold three residential condominiums for gross
proceeds of $5,180,000, reducing inventory to be sold to 89
condominiums.
Liquidity and Capital Markets
At March 31, 2021, the Company did not have any borrowings
outstanding under its $1,750,000,000 unsecured credit facility and
had $229,732,000 in unrestricted cash and cash in escrow.
The Company’s annualized Net Debt-to-Core EBITDAre (as defined
in this release) for the first quarter of 2021 was 5.6 times and
Unencumbered NOI (as defined in this release) was 94%.
During the three months ended March 31, 2021, the Company repaid
$27,795,000 principal amount of 5.37% fixed rate debt secured by
Avalon San Bruno II at par in advance of its April 2021 maturity
date.
Second Quarter 2021 Financial Outlook
For its second quarter 2021 financial outlook, the Company
expects the following:
Projected EPS, Projected FFO
and Projected Core FFO Outlook (1)
Q2 2021
Low
High
Projected EPS
$2.95
-
$3.05
Projected FFO per share
$1.82
-
$1.92
Projected Core FFO per share
$1.85
-
$1.95
(1) See Definitions and Reconciliations,
table 9, for reconciliations of Projected FFO per share and
Projected Core FFO per share to Projected EPS.
Second Quarter Financial
Outlook
Q2 2021
Low
High
Established Communities:
Residential revenue change
(6.25)%
-
(4.75)%
Residential operating expense change
6.75%
-
9.75%
Residential NOI change
(13.0)%
-
(10.0)%
The following table compares the Company’s actual results for
EPS, FFO per share and Core FFO per share for the first quarter of
2021 to its second quarter 2021 financial outlook:
Q1 2021 Results Compared to
Second Quarter 2021 Outlook
Per Share (1)
EPS
FFO
Core FFO
Q1 2021 per share reported results
$
1.02
$
1.94
$
1.95
Established Community Residential NOI
(1)
(0.05
)
(0.05
)
(0.05
)
Commercial and other Residential NOI
0.02
0.02
0.02
Capital markets and transaction
activity
(0.02
)
(0.02
)
—
Overhead and other
(0.02
)
(0.02
)
(0.02
)
Gain on sale of real estate and
depreciation expense
2.05
—
—
Projected per share - second quarter 2021
outlook (2)
$
3.00
$
1.87
$
1.90
(1) Consists of a $0.00 change in Established Community Residential
revenue and a $(0.05) change in Established Community Residential
operating expenses.
(2) The mid-point of the Company's second
quarter 2021 outlook.
Second Quarter Conference Schedule
The Company is scheduled to participate in Nareit's REITweek
Conference from June 8 - 10, 2021. 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 a
webcast of the Company's presentation will be available in advance
of the conference event on the Company's website at
http://www.avalonbay.com/events.
Other Matters
The Company will hold a conference call on April 29, 2021 at
1:00 PM ET to review and answer questions about this release, its
first quarter 2021 results, the Attachments (described below) and
related matters. To participate on the call, dial 800-263-0877 and
use conference id: 1309263.
To hear a replay of the call, which will be available from April
29, 2021 at 6:00 PM ET to May 6, 2021 at 6:00 PM ET, dial
888-203-1112 and use conference id: 1309263. 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 seven 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://investors.avalonbay.com/email_notification.
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 April 29, 2021.
About AvalonBay Communities, Inc.
As of March 31, 2021, the Company owned or held a direct or
indirect ownership interest in 290 apartment communities containing
85,787 apartment homes in 11 states and the District of Columbia,
of which 15 communities were under development and one community
was under redevelopment. 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, Southeast
Florida, Denver, Colorado, the Pacific Northwest, and Northern and
Southern California. More information may be found on the Company’s
website at http://www.avalonbay.com. For additional information,
please contact Jason Reilley, Vice President 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 those related to the COVID-19 pandemic, about
which there are many uncertainties, including (i) the duration and
severity of the pandemic, (ii) the effectiveness of vaccines and
the rate of vaccination and (iii) the effect on the multifamily
industry and the general economy of measures taken by businesses
and the government to prevent the spread of the novel coronavirus
and relieve economic distress of consumers, such as governmental
limitations on the ability of multifamily owners to evict residents
who are delinquent in the payment of their rent and federal efforts
at economic stimulus. The adverse impact over the long-term of the
pandemic on our business, results of operations, cash flows and
financial condition could be material. In addition, the effects of
the pandemic are likely to heighten the following risks, which we
routinely face in our business: 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,
landlord-tenant laws, including the adoption of new rent control
regulations, and other economic or regulatory 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 timing and net proceeds of condominium
sales may not equal our current expectations. Additional
discussions of risks and uncertainties that could cause actual
results to differ materially from those expressed or implied by the
forward-looking statements (and which risks may also be heightened
because of the COVID-19 pandemic) 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, 2020 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 2021 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, reconciled and further
explained on Attachment 11, Definitions and Reconciliations of
Non-GAAP Financial Measures and Other Terms. Attachment 11 is
included in the full earnings release available at the Company’s
website at http://www.avalonbay.com/earnings. This wire
distribution includes only the following definitions and
reconciliations.
AVB Residential Benchmark
represents the average monthly revenue collections as a percentage
of amounts billed for the referenced day of the month for the
period from April 2019 to March 2020.
Average Rental Rates are calculated
by the Company as Residential rental revenue in accordance with
GAAP, divided by the weighted average number of occupied apartment
homes.
Commercial represents results
attributable to the Company's non-apartment components of its
mixed-use communities and other non-residential operations.
Development Communities are
consolidated communities that are either currently under
construction, or were under construction and were completed during
the current year. These communities may be partially or fully
complete and operating.
Economic Occupancy (“Ec Occ”) is
defined as total possible Residential revenue less vacancy loss as
a percentage of total possible Residential revenue. Total possible
Residential 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.
Economic Gain is calculated by the
Company as the gain on sale in accordance with GAAP, less
accumulated depreciation through the date of sale and any other
adjustments that may be required under GAAP accounting. Management
generally considers Economic Gain to be an appropriate supplemental
measure to gain 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 for disposed communities is based on their respective
final settlement statements. A reconciliation of the aggregate
Economic Gain to the aggregate gain on sale in accordance with GAAP
for the wholly-owned operating communities disposed of during the
three months ended March 31, 2021 is as follows (dollars in
thousands):
TABLE 1
Q1 2021
GAAP Gain
$
53,775
Accumulated Depreciation and Other
(28,258
)
Economic Gain
$
25,517
Established Communities are
consolidated communities in the markets where the Company has a
significant presence and 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 2021 operating results, Established Communities are
consolidated communities that have Stabilized Operations as of
January 1, 2020, are not conducting or are not probable to conduct
substantial redevelopment activities and are not held for sale or
probable for disposition within the current year.
Established Communities Collections
are the collection rates based on individual resident and
commercial tenant activity as reflected in the Company’s property
management systems, and are presented to provide information about
collections trends during the COVID-19 pandemic. Prior to the
COVID-19 pandemic, the collections information provided was not
routinely produced for internal use by senior management or
publicly disclosed by the Company, and is a result of analysis that
is not subject to internal controls over financial reporting. This
information is not prepared in accordance with GAAP, does not
reflect GAAP revenue or cash flow metrics, may be subject to
adjustment in preparing GAAP revenue and cash flow metrics at the
end of the three months ended March 31, 2021. Additionally, this
information should not be interpreted as predicting the Company’s
financial performance, results of operations or liquidity for any
period.
EBITDA, EBITDAre and Core EBITDAre
are considered by management to be supplemental measures of our
financial performance. EBITDA is defined by the Company as net
income or loss attributable to the Company before interest expense,
income taxes, depreciation and amortization. EBITDAre 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”), as EBITDA plus or minus losses and
gains on the disposition of depreciated property, plus impairment
write-downs of depreciated property, with adjustments to reflect
the Company's share of EBITDAre of unconsolidated entities. Core
EBITDAre is the Company’s EBITDAre as adjusted for non-core items
outlined in the table below. By further adjusting for items that
are not considered part of the Company’s core business operations,
Core EBITDAre can help one compare the core operating and financial
performance of the Company between periods. A reconciliation of
EBITDA, EBITDAre and Core EBITDAre to net income is as follows
(dollars in thousands):
TABLE 2
Q1
2021
Net income
$
142,234
Interest expense (1)
55,416
Income tax benefit
(755
)
Depreciation expense
183,297
EBITDA
$
380,192
Gain on sale of communities
(53,727
)
Joint venture EBITDAre adjustments (2)
3,274
EBITDAre
$
329,739
Joint venture losses
101
Gain on interest rate contract
(2,654
)
Executive transition compensation
costs
1,781
Development pursuit write-offs and
expensed transaction costs, net of recoveries
(225
)
Gain on for-sale condominiums
(131
)
For-sale condominium marketing, operating
and administrative costs
1,044
Gain on other real estate transactions
(427
)
Legal settlements
60
Core EBITDAre
$
329,288
(1) Includes gains and losses on
extinguishment of debt and excludes the impact of gain on interest
rate contract, if applicable.
(2) Includes joint venture interest,
taxes, depreciation, gain on dispositions of depreciated real
estate and impairment losses, if applicable, included in net
income.
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 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 by us to be 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 of Net income attributable to common stockholders to
FFO and to Core FFO is as follows (dollars in thousands):
TABLE 3
Q1
Q1
2021
2020
Net income attributable to common
stockholders
$
142,223
$
167,971
Depreciation - real estate assets,
including joint venture adjustments
182,314
177,428
Distributions to noncontrolling
interests
12
12
Gain on sale of previously depreciated
real estate
(53,727
)
(24,436
)
FFO attributable to common
stockholders
270,822
320,975
Adjusting items:
Joint venture losses
101
—
(Gain) loss on extinguishment of
consolidated debt
(122
)
9,170
Gain on interest rate contract
(2,654
)
—
Advocacy contributions
—
301
Executive transition compensation
costs
1,781
—
Severance related costs
—
1,951
Development pursuit write-offs and
expensed transaction costs, net of recoveries
(225
)
3,120
Gain on for-sale condominiums (1)
(131
)
(4,903
)
For-sale condominium marketing, operating
and administrative costs (1)
1,044
1,443
For-sale condominium imputed carry cost
(2)
2,152
3,609
Gain on other real estate transactions
(427
)
(43
)
Legal settlements
60
43
Income tax (benefit) expense
(755
)
91
Core FFO attributable to common
stockholders
$
271,646
$
335,757
Average shares outstanding - diluted
139,552,413
140,777,873
Earnings per share - diluted
$
1.02
$
1.19
FFO per common share - diluted
$
1.94
$
2.28
Core FFO per common share - diluted
$
1.95
$
2.39
(1) Aggregate impact of (i) Gain on
for-sale condominiums and (ii) For-sale condominium marketing,
operating and administrative costs, is a net expense of $913 for Q1
2021 and a net gain of $3,640 for Q1 2020, respectively.
(2) Represents the imputed carry cost of
the for-sale residential condominiums at The Park Loggia. The
Company computes this adjustment by multiplying the Total Capital
Cost of completed and unsold for-sale residential condominiums by
the Company's weighted average unsecured debt effective interest
rate.
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 2.25%. 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 EBITDAre, 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. A
calculation of Interest Coverage for the three months ended March
31, 2021 is as follows (dollars in thousands):
TABLE 4
Core EBITDAre
$
329,288
Interest expense (1)
$
55,416
Interest Coverage
5.9 times
(1) Includes gains and losses on
extinguishment of debt and excludes the impact of gain on interest
rate contract, if applicable.
Market Rents as reported by the
Company are based on the current market rates set by the Company
based on its experience in renting apartments and publicly
available market data. Trends in Market Rents for a region as
reported by others could vary. Market Rents for a period are based
on the average Market Rents during that period and do not reflect
any impact for cash concessions.
Net Debt-to-Core EBITDAre is
calculated by the Company as total debt (secured and unsecured
notes and the Company's variable rate unsecured credit facility)
that is consolidated for financial reporting purposes, less
consolidated cash and cash in escrow, divided by annualized first
quarter 2021 Core EBITDAre, as adjusted. A calculation of Net
Debt-to-Core EBITDAre is as follows (dollars in thousands):
TABLE 5
Total debt principal (1)
$
7,601,326
Cash and cash in escrow
(229,732
)
Net debt
$
7,371,594
Core EBITDAre
$
329,288
Core EBITDAre, annualized
$
1,317,152
Net Debt-to-Core EBITDAre
5.6 times
(1) Balance at March 31, 2021 excludes
$9,978 of debt discount and $36,263 of deferred financing costs as
reflected in unsecured notes, net, and $14,361 of debt discount and
$2,940 of deferred financing costs as reflected in notes payable on
the Condensed Consolidated Balance Sheets.
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, expensed
transaction, development and other pursuit costs, net of
recoveries, interest expense, net, loss (gain) on extinguishment of
debt, net, general and administrative expense, joint venture
(income) loss, depreciation expense, corporate income tax expense
(benefit), casualty and impairment loss (gain), net, gain on sale
of communities, (gain) loss on other real estate transactions, net
for-sale condominium activity 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.
Residential NOI represents results attributable to the Company's
apartment rental operations, including parking and other ancillary
Residential revenue. A reconciliation of Residential NOI to Net
Income, as well as a breakdown of Residential NOI by operating
segment, is as follows (dollars in thousands):
TABLE 6
Q1
Q1
Q4
2021
2020
2020
Net income
$
142,234
$
168,006
$
341,114
Indirect operating expenses, net of
corporate income
24,470
22,799
27,400
Expensed transaction, development and
other pursuit costs, net of recoveries
(170
)
3,334
8,110
Interest expense, net
52,613
55,914
51,589
(Gain) loss on extinguishment of debt,
net
(122
)
9,170
—
General and administrative expense
17,352
17,320
13,465
Joint venture loss (income)
467
(1,175
)
348
Depreciation expense
183,297
177,911
177,823
Income tax (benefit) expense
(755
)
91
(2,178
)
Gain on sale of communities
(53,727
)
(24,436
)
(249,106
)
Gain on other real estate transactions
(427
)
(43
)
(112
)
Net for-sale condominium activity
913
(3,460
)
1,611
NOI from real estate assets sold or held
for sale
(1,490
)
(9,918
)
(6,534
)
NOI
364,655
415,513
363,530
Commercial NOI
(5,377
)
(6,792
)
333
Residential NOI
$
359,278
$
408,721
$
363,863
Residential NOI
Established:
New England
$
46,278
$
52,108
$
47,813
Metro NY/NJ
70,166
78,622
71,939
Mid-Atlantic
55,831
64,414
56,245
Southeast FL
4,178
4,114
3,966
Denver, CO
4,019
3,341
3,712
Pacific NW
19,933
23,527
20,302
No. California
63,558
81,088
65,901
So. California
71,654
82,946
72,795
Total Established
335,617
390,160
342,673
Other Stabilized
17,136
16,503
16,889
Development/Redevelopment
6,525
2,058
4,301
Residential NOI
$
359,278
$
408,721
$
363,863
NOI as reported by the Company does not include the operating
results from assets sold or classified as held for sale. A
reconciliation of NOI from communities sold or classified as held
for sale is as follows (dollars in thousands):
TABLE 7
Q1
Q1
Q4
2021
2020
2020
Revenue from real estate assets sold or
held for sale
$
2,303
$
15,253
$
10,486
Operating expenses from real estate assets
sold or held for sale
(813
)
(5,335
)
(3,952
)
NOI from real estate assets sold or held
for sale
$
1,490
$
9,918
$
6,534
Commercial NOI is comprised of the following components (in
thousands):
TABLE 8
Q1
Q1
Q4
2021
2020
2020
Commercial Revenue
$
6,850
$
8,116
$
985
Commercial Operating Expenses
(1,473
)
(1,324
)
(1,318
)
Commercial NOI
$
5,377
$
6,792
$
(333
)
Other Stabilized Communities are
completed consolidated communities that the Company owns, which
have Stabilized Operations as of January 1, 2021, or which were
acquired subsequent to January 1, 2020. Other Stabilized
Communities excludes communities that are conducting or are
probable 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 second quarter 2021 to
the ranges provided for projected EPS (diluted) and corresponding
reconciliation of the ranges for Projected FFO per share to the
ranges for Projected Core FFO per share are as follows:
TABLE 9
Low Range
High Range
Projected EPS (diluted) - Q2 2021
$
2.95
$
3.05
Depreciation (real estate related)
1.29
1.33
Gain on sale of communities
(2.42
)
(2.46
)
Projected FFO per share (diluted) - Q2
2021
1.82
1.92
Adjustments related to residential
for-sale condominiums at The Park Loggia
0.01
0.01
Asset management fee intangible
write-off
0.01
0.01
Other
0.01
0.01
Projected Core FFO per share (diluted) -
Q2 2021
$
1.85
$
1.95
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 generally 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
("Weighted Average Initial Projected Stabilized Yield") 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.
Redevelopment Communities are
consolidated communities where substantial redevelopment is in
progress or is probable to begin during the current year.
Redevelopment is considered substantial when (i) capital invested
during the reconstruction effort is expected to exceed the lesser
of $5,000,000 or 10% of the community’s pre-redevelopment basis and
(ii) physical occupancy is below or is expected to be below 90%
during or as a result of the redevelopment activity. Redevelopment
Communities include one community containing 344 apartment homes
that are currently under active redevelopment as of March 31,
2021.
Residential Rental Revenue with
Concessions on a Cash Basis is considered by the Company to
be a supplemental measure to Residential rental revenue in
conformity with GAAP to help investors evaluate the impact of both
current and historical concessions on GAAP-based Residential rental
revenue and to more readily enable comparisons to revenue as
reported by other companies. In addition, Residential Rental
Revenue with Concessions on a Cash Basis allows an investor to
understand the historical trend in cash concessions.
A reconciliation of Residential rental revenue from Established
Communities in conformity with GAAP to Residential Rental Revenue
with Concessions on a Cash Basis is as follows (dollars in
thousands):
TABLE 10
Q1
Q1
2021
2020
Residential rental revenue (GAAP
basis)
$
497,107
$
546,580
Residential concessions amortized
14,665
1,195
Residential concessions granted
(15,836
)
(1,319
)
Residential Rental Revenue with
Concessions
on a Cash Basis
$
495,936
$
546,456
% change -- GAAP revenue
(9.1
)%
% change -- cash revenue
(9.2
)%
Residential represents results
attributable to the Company's apartment rental operations,
including parking and other ancillary residential revenue.
Stabilized Operations/Restabilized
Operations is defined as the earlier of (i) attainment of
90% 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, 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. Total Capital Cost also
includes costs incurred related to first generation commercial
tenants, such as tenant improvements and leasing commissions. 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.
Unconsolidated Development
Communities are communities that are either currently under
construction, or were under construction and were completed during
the current year, in which we have an indirect ownership interest
through our investment interest in an unconsolidated joint venture.
These communities may be partially or fully complete and
operating.
Unencumbered NOI as calculated by
the Company represents NOI generated by real estate assets
unencumbered by outstanding secured notes payable as of March 31,
2021 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 three months ended March 31, 2021 is as
follows (dollars in thousands):
TABLE 11
Q1 2021
NOI
Residential NOI:
Established
$
335,617
Other Stabilized
17,136
Development/Redevelopment
6,525
Total Residential NOI
359,278
Commercial NOI
5,377
NOI from real estate assets sold or held
for sale
1,490
Total NOI generated by real estate
assets
366,145
NOI on encumbered assets
21,210
NOI on unencumbered assets
$
344,935
Unencumbered NOI
94
%
Copyright © 2021 AvalonBay Communities, Inc.
All Rights Reserved
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210428006109/en/
Jason Reilley Vice President of Investor Relations
703-317-4681
Avalonbay Communities (NYSE:AVB)
Historical Stock Chart
From Aug 2024 to Sep 2024
Avalonbay Communities (NYSE:AVB)
Historical Stock Chart
From Sep 2023 to Sep 2024