AvalonBay Communities, Inc. (NYSE: AVB) (the “Company”) reported
today that Net Income Attributable to Common Stockholders for the
three months ended June 30, 2019 was $168,281,000. This resulted in
a decrease in Earnings per Share – diluted (“EPS”) for the three
months ended June 30, 2019 of 34.2% to $1.21 from $1.84 for the
prior year period.
Funds from Operations attributable to common stockholders -
diluted (“FFO”) per share for the three months ended June 30, 2019
increased 1.4% to $2.24 from $2.21 for the prior year period. Core
FFO per share (as defined in this release) for the three months
ended June 30, 2019 increased 1.8% to $2.27 from $2.23 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 June 30, 2019 to its results for the prior year period:
Q2 2019 Results Compared to Q2
2018
Per Share (1)
EPS
FFO
Core FFO
Q2 2018 per share reported results
$
1.84
$
2.21
$
2.23
Established and Redevelopment Community
NOI
0.07
0.07
0.07
Other Stabilized and Development Community
NOI
0.08
0.08
0.07
Capital markets activity
(0.07
)
(0.07
)
(0.06
)
Overhead expense and other
(0.06
)
(0.06
)
(0.05
)
Joint venture income
0.01
0.01
0.01
Gain on sale of real estate and
depreciation expense
(0.66
)
—
—
Q2 2019 per share reported results
$
1.21
$
2.24
$
2.27
(1) For additional detail on reconciling
items between EPS, FFO and Core FFO, see Definitions and
Reconciliations, table 5.
For the six months ended June 30, 2019, EPS decreased 15.3% to
$2.43 from $2.87 for the prior year period, FFO per share increased
3.9% to $4.55 from $4.38 for the prior year period, and Core FFO
per share increased 3.6% to $4.57 from $4.41 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 six months ended
June 30, 2019 to its results for the prior year period:
YTD 2019 Results
Comparison to YTD 2018
Per Share (1)
EPS
FFO
Core FFO
YTD 2018 per share reported results
$
2.87
$
4.38
$
4.41
Established and Redevelopment Community
NOI
0.18
0.18
0.18
Other Stabilized and Development Community
NOI
0.16
0.16
0.14
Capital markets activity
(0.13
)
(0.13
)
(0.13
)
Overhead expense and other
(0.07
)
(0.07
)
(0.06
)
Joint venture income and management
fees
0.03
0.03
0.03
Gain on sale of real estate and
depreciation expense
(0.61
)
—
—
YTD 2019 per share reported results
$
2.43
$
4.55
$
4.57
(1) For additional detail on reconciling
items between EPS, FFO and Core FFO, see Definitions and
Reconciliations, table 5.
Established Communities Operating Results for the Three
Months Ended June 30, 2019 Compared to the Prior Year Period
(a)
For Established Communities, total revenue increased
$14,212,000, or 3.2%, to $457,799,000. Operating expenses for
Established Communities increased $5,274,000, or 4.2%, to
$131,025,000. NOI for Established Communities increased $8,938,000,
or 2.8%, to $326,774,000. Rental revenue for Established
Communities increased 3.1% as a result of an increase in Average
Rental Rates of 3.2%, partially offset by a decrease in Economic
Occupancy of 0.1%.
The following table reflects the percentage changes in rental
revenue, operating expenses and NOI for Established Communities for
the three months ended June 30, 2019 compared to the three months
ended June 30, 2018:
Q2 2019 Compared to Q2
2018
Rental Revenue (1)(2)
Opex (2)(3)
NOI
% of NOI (4)
New England
2.8
%
2.6
%
2.8
%
14.3
%
Metro NY/NJ
3.1
%
1.8
%
4.0
%
22.7
%
Mid-Atlantic
2.8
%
4.0
%
2.3
%
15.9
%
Pacific NW
4.8
%
(1.7
)%
7.6
%
5.7
%
No. California
3.2
%
7.7
%
1.9
%
20.6
%
So. California
3.1
%
7.5
%
1.6
%
20.8
%
Total
3.1
%
4.2
%
2.8
%
100.0
%
(1) See full release for additional
detail.
(2) 2018 results have been adjusted to
reflect uncollectible lease revenue as an adjustment to revenue.
See Definitions and Reconciliations, table 1.
(3) See full release for discussion of
variances.
(4) Represents % of total NOI for Q2 2019
in the presented regions, including amounts related to communities
that have been sold or that are classified as held for sale.
Established Communities Operating Results for the Six
Months Ended June 30, 2019 Compared to the Prior Year Period
(a)
For Established Communities, total revenue increased
$29,568,000, or 3.4%, to $909,987,000. Operating expenses for
Established Communities increased $5,384,000, or 2.1%, to
$257,367,000. NOI for Established Communities increased
$24,184,000, or 3.8%, to $652,620,000. Rental revenue for
Established Communities increased 3.3% as a result of an increase
in Average Rental Rates of 3.5%, partially offset by a decrease in
Economic Occupancy of 0.2%.
The following table reflects the percentage changes in rental
revenue, operating expenses and NOI for Established Communities for
the six months ended June 30, 2019 compared to the six months ended
June 30, 2018:
YTD 2019 Compared to YTD
2018
Rental Revenue (1)(2)
Opex
(2)(3)
NOI
% of NOI (4)
New England
3.0
%
1.2
%
4.1
%
14.2
%
Metro NY/NJ
3.1
%
1.5
%
4.0
%
22.4
%
Mid-Atlantic
3.0
%
2.1
%
3.4
%
16.0
%
Pacific NW
4.8
%
(2.6
)%
8.1
%
5.7
%
No. California
3.3
%
2.6
%
3.6
%
20.9
%
So. California
3.4
%
4.7
%
3.0
%
20.8
%
Total
3.3
%
2.1
%
3.8
%
100.0
%
(1) See full release for additional
detail.
(2) 2018 results have been adjusted to
reflect uncollectible lease revenue as an adjustment to revenue.
See Definitions and Reconciliations, table 1.
(3) See full release for discussion of
variances.
(4) Represents % of total NOI for YTD 2019
in the presented regions, including amounts related to communities
that have been sold or that are classified as held for sale.
(a)
Historically, the Company presented
charges related to uncollectible lease revenue in operating
expenses. With the Company’s adoption of ASU 2016-02, Leases,
the Company is presenting such charges as an adjustment to revenue
in its consolidated GAAP financial statements on a prospective
basis, beginning January 1, 2019. However, for reported
segment financial information, including for Established
Communities, the Company has also included such charges as an
adjustment to revenue for all prior year periods presented in order
to provide comparability. Refer to Definitions and
Reconciliations, table 1, for additional detail and a
reconciliation.
Development Activity
During the three months ended June 30, 2019, the Company
completed the development of Avalon Piscataway, located in
Piscataway, NJ. Avalon Piscataway contains 360 apartment homes and
was constructed for a Total Capital Cost of $91,000,000.
The Company started the construction of three communities:
- Avalon Brea Place, located in Brea, CA;
- Avalon Foundry Row, located in Owings Mill, MD; and
- Avalon Marlborough II, located in Marlborough, MA.
These communities are expected to contain an aggregate of 1,213
apartment homes when completed and will be developed for an
aggregate estimated Total Capital Cost of $432,000,000.
During the six months ended June 30, 2019, the Company completed
the development of three communities containing an aggregate of 800
apartment homes for an aggregate Total Capital Cost of
$243,000,000.
At June 30, 2019 (excluding 15 West 61st Street, which is
expected to be developed for a Total Capital Cost of $624,000,000),
the Company had 21 Development Communities under construction that
in the aggregate are expected to contain 7,023 apartment homes and
94,000 square feet of retail space. Estimated Total Capital Cost at
completion for these Development Communities is $2,578,000,000.
The projected Total Capital Cost of Development Rights at June
30, 2019 decreased to $3.8 billion from $4.2 billion at March 31,
2019.
Acquisition Activity
During the three months ended June 30, 2019, the Company
acquired Avalon Cerritos, located in Cerritos, CA, containing 132
apartment homes for a purchase price of $60,500,000.
During the six months ended June 30, 2019, the Company acquired
two communities containing an aggregate of 470 apartment homes for
an aggregate purchase price of $151,750,000.
In July 2019, the Company acquired Portico at Silver Spring
Metro, located in Silver Spring, MD, containing 151 apartment homes
for a purchase price of $43,450,000.
Disposition Activity
During the three months ended June 30, 2019, the Company sold
Archstone Toscano, a wholly-owned operating community, located in
Houston, TX. Archstone Toscano contains 474 apartment homes and was
sold for $98,000,000, resulting in a gain in accordance with GAAP
of $20,604,000 and an Economic Gain of $6,812,000.
During the six months ended June 30, 2019, the Company sold two
wholly-owned operating communities containing an aggregate of 658
apartment homes. These assets were sold for $168,000,000 and a
weighted average Initial Year Market Cap Rate of 4.5%, resulting in
a gain in accordance with GAAP of $36,986,000 and an Economic Gain
of $12,995,000.
In July 2019, the Company sold AVA Stamford, a wholly-owned
operating community, located in Stamford, CT. AVA Stamford contains
306 apartment homes and was sold for $105,000,000.
Liquidity and Capital Markets
At June 30, 2019, the Company did not have any borrowings
outstanding under its $1,750,000,000 unsecured credit facility, and
had $330,044,000 in unrestricted cash and cash in escrow.
During the three months ended June 30, 2019, the Company had the
following debt activity:
- The Company issued $450,000,000 principal amount of unsecured
notes in a public offering under its existing shelf registration
statement for net proceeds of $446,877,000. The notes mature in
June 2029 and were issued with a 3.30% coupon. The effective
interest rate of the notes is 3.66%, including the impact of an
interest rate hedge and offering costs.
- The Company repaid an aggregate $47,217,000 principal amount of
mortgage notes secured by one operating community at par at the
scheduled maturity date, of which $13,363,000 was a 2.99% fixed
rate mortgage note and $33,854,000 was a variable rate mortgage
note.
- The Company repaid an aggregate $84,835,000 principal amount of
variable rate mortgage notes secured by four operating communities
at par in advance of their June 2025 maturity date. The Company
utilized $47,174,000 of restricted cash held in principal reserve
funds to repay a portion of the outstanding indebtedness.
In addition, during the three months ended June 30, 2019, the
Company sold 239,580 shares of common stock under the current
continuous equity program established in May 2019, at an average
sales price of $208.70 per share, for net proceeds of
$49,250,000.
During the six months ended June 30, 2019, the Company sold
994,634 shares of common stock at an average sales price of $200.77
per share, for net proceeds of $196,700,000. These sales were
completed under both the Company's previous and current continuous
equity programs.
The Company’s annualized Net Debt-to-Core EBITDAre (as defined
in this release) for the second quarter of 2019 was 4.8 times.
Full Year 2019 Financial Outlook
For its full year 2019 financial outlook, the Company expects
the following:
Projected EPS, Projected FFO
and Projected Core FFO Outlook (1)
Full Year 2019
Low
High
Projected EPS
$5.78
-
$5.98
Projected FFO per share
$9.13
-
$9.33
Projected Core FFO per share
$9.25
-
$9.45
(1) See Definitions and Reconciliations,
table 10, for reconciliations of Projected FFO per share and
Projected Core FFO per share to Projected EPS.
The following table compares the Company's July 2019 outlook for
EPS, FFO per share and Core FFO per share for the full year 2019 to
its February 2019 outlook:
July 2019 Full Year Outlook
Comparison
to February 2019 Full Year
Outlook
Per Share
EPS
FFO
Core FFO
Projected per share - February 2019
outlook (1)
$
5.43
$
9.25
$
9.30
Established and Redevelopment Community
NOI
—
—
—
Other Stabilized and Development Community
NOI
(0.06
)
(0.06
)
(0.02
)
Capital markets activity
0.09
0.09
0.08
Overhead expense, joint venture income and
other
(0.05
)
(0.05
)
(0.01
)
Gain on sale of real estate and
depreciation expense
0.47
—
—
Projected per share - July 2019 outlook
(1)
$
5.88
$
9.23
$
9.35
(1) The mid-point of the Company's
outlook.
Further detail of the Company's full year 2019 outlook is
available in the full release.
Other Matters
The Company will hold a conference call on August 1, 2019 at
1:00 PM ET to review and answer questions about this release, its
second quarter 2019 results, the Attachments (described below) and
related matters. To participate on the call, dial 888-254-3590 and
use conference id: 7977097.
To hear a replay of the call, which will be available from
August 1, 2019 at 6:00 PM ET to August 8, 2019 at 6:00 PM ET, dial
888-203-1112 and use conference id: 7977097. 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://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 August 1, 2019. These
supplemental materials will be available on the Company's website
for 30 days following the earnings call.
About AvalonBay Communities, Inc.
As of June 30, 2019, the Company owned or held a direct or
indirect ownership interest in 294 apartment communities containing
86,184 apartment homes in 12 states and the District of Columbia,
of which 21 communities were under development and seven
communities were under redevelopment. The Company is an equity REIT
in the business of developing, redeveloping, acquiring and managing
apartment communities in leading metropolitan areas primarily 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, 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 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, landlord-tenant laws 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; and our assumptions and expectations in
our financial outlook may prove to be too optimistic. Additional
discussions of risks and uncertainties that could cause actual
results to differ materially from those expressed or implied by the
forward-looking statements appear in the Company’s filings with the
Securities and Exchange Commission, including the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2018
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 2019 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 14, Definitions and Reconciliations of
Non-GAAP Financial Measures and Other Terms. Attachment 14 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.
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.
Business Segment Operating Results
included in this release presents the Company’s business segment
financial information for all reporting periods on a comparable
basis, with the charge for uncollectible lease revenue included as
an adjustment to revenue. Historically for periods prior to January
1, 2019, the Company presented charges related to uncollectible
lease revenue in operating expenses. With the Company’s adoption of
ASU 2016-02, Leases, the Company is presenting such charges as an
adjustment to revenue in its consolidated GAAP financial statements
on a prospective basis, beginning January 1, 2019. However, for
reported segment financial information, including for Established
Communities, the Company has also included such charges as an
adjustment to revenue for all prior year periods presented in order
to provide comparability.
Established Communities
A reconciliation of total revenue, rental revenue and operating
expenses for Established Communities, as presented in this release,
to results prior to the adjustment for uncollectible lease revenue
is as follows (dollars in thousands):
TABLE 1
Q2 2019
Q2 2018
Q2 2019 to Q2 2018 % Change
Q1 2019
Q2 2019 to Q1 2019 % Change
YTD 2019
YTD 2018
YTD 2019 to YTD 2018 % Change
Total revenue, excluding uncollectible
lease revenue
$
460,297
$
446,270
3.1
%
$
454,091
1.4
%
$
914,390
$
886,407
3.2
%
Uncollectible lease revenue
(2,498
)
(2,683
)
(6.9
)%
(1,905
)
31.1
%
(4,403
)
(5,988
)
(26.5
)%
Total revenue, including uncollectible
lease revenue
457,799
443,587
3.2
%
452,186
1.2
%
909,987
880,419
3.4
%
Rental revenue, excluding uncollectible
lease revenue
459,690
446,014
3.1
%
453,625
1.3
%
913,315
885,965
3.1
%
Uncollectible lease revenue
(2,498
)
(2,683
)
(6.9
)%
(1,905
)
31.1
%
(4,403
)
(5,988
)
(26.5
)%
Rental revenue, including uncollectible
lease revenue
457,192
443,331
3.1
%
451,720
1.2
%
908,912
879,977
3.3
%
Operating expenses, excluding
uncollectible lease revenue
131,025
125,751
4.2
%
126,340
3.7
%
257,367
251,983
2.1
%
Uncollectible lease revenue
2,498
2,683
(6.9
)%
1,905
31.1
%
4,403
5,988
(26.5
)%
Operating expenses, including
uncollectible lease revenue
$
133,523
$
128,434
4.0
%
$
128,245
4.1
%
$
261,770
$
257,971
1.5
%
Other Reported Operating Results
A reconciliation of rental revenue and operating expenses, for
results for periods presented in this release prior to the
adjustment for uncollectible lease revenue, is as follows (dollars
in thousands):
TABLE 2
Q4 2018
Established
Other Stabilized
Redevelopment
Development
Rental revenue, excluding uncollectible
lease revenue
$
453,242
$
70,302
$
32,086
$
2,282
Uncollectible lease revenue
(2,023
)
(755
)
(147
)
(5
)
Rental revenue, including uncollectible
lease revenue
451,219
69,547
31,939
2,277
Operating expenses, excluding
uncollectible lease revenue
124,954
22,760
9,738
1,165
Uncollectible lease revenue
2,023
755
147
5
Operating expenses, including
uncollectible lease revenue
$
126,977
$
23,515
$
9,885
$
1,170
Development Communities are
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.
Development Rights are development
opportunities in the early phase of the development process for
which the Company either has an option to acquire land or enter
into a leasehold interest, for which the Company is the buyer under
a long-term conditional contract to purchase land, where the
Company controls the land through a ground lease or owns land to
develop a new community, or where the Company is the designated
developer in a public-private partnership. The Company capitalizes
related pre-development costs incurred in pursuit of new
developments for which the Company currently believes future
development is probable.
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.
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
disposed communities is based on their respective final settlement
statements. A reconciliation of the aggregate Economic Gain (Loss)
to the aggregate gain on sale in accordance with GAAP for the
wholly-owned operating communities disposed of during the three and
six months ended June 30, 2019 is as follows (dollars in
thousands):
TABLE 3
Q2
YTD
2019
2019
GAAP Gain
$
20,604
$
36,986
Accumulated Depreciation and Other
(13,792
)
(23,991
)
Economic Gain (Loss)
$
6,812
$
12,995
Established Communities are
consolidated communities in the markets where the Company has a
significant presence (New England, New York/New Jersey,
Mid-Atlantic, Pacific Northwest, and Northern and Southern
California) 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
2019 operating results, Established Communities are consolidated
communities that have Stabilized Operations as of January 1, 2018,
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.
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 income
and 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 4
Q2
2019
Net income
$
168,305
Interest expense, net, inclusive of loss
on extinguishment of debt, net
50,239
Depreciation expense
162,693
EBITDA
$
381,237
Gain on sale of communities
(20,530
)
Joint venture EBITDAre adjustments (1)
5,789
EBITDAre
$
366,496
Gain on other real estate transactions
(34
)
Business interruption insurance
proceeds
(435
)
Severance related costs
1,353
Development pursuit write-offs and
expensed transaction costs, net
1,327
Potential residential for-sale condominium
marketing and administrative costs
945
Legal settlements
38
Core EBITDAre
$
369,690
(1) 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 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 5
Q2
Q2
YTD
YTD
2019
2018
2019
2018
Net income attributable to common
stockholders
$
168,281
$
254,662
$
338,647
$
396,305
Depreciation - real estate assets,
including joint venture adjustments
164,830
156,289
329,576
314,772
Distributions to noncontrolling
interests
12
11
23
22
Gain on sale of previously depreciated
real estate
(20,530
)
(105,201
)
(35,365
)
(105,201
)
FFO attributable to common
stockholders
312,593
305,761
632,881
605,898
Adjusting items:
Joint venture losses
—
7
—
7
Joint venture promote (1)
—
—
—
(925
)
Casualty gain, net on real estate
—
—
—
(58
)
Business interruption insurance
proceeds
(435
)
—
(607
)
—
Lost NOI from casualty losses covered by
business interruption insurance (2)
—
832
—
1,730
Loss on extinguishment of consolidated
debt
229
642
509
1,039
Advocacy contributions
—
303
—
606
Severance related costs
1,353
132
1,372
502
Development pursuit write-offs and
expensed transaction costs, net
1,327
243
1,604
570
Potential residential for-sale condominium
marketing and administrative costs
945
158
1,418
158
Potential residential for-sale condominium
imputed carry cost (3)
506
—
506
—
Gain on other real estate transactions
(34
)
(370
)
(301
)
(323
)
Legal settlements
38
67
(978
)
367
Income taxes
—
—
(6
)
—
Core FFO attributable to common
stockholders
$
316,522
$
307,775
$
636,398
$
609,571
Average shares outstanding - diluted
139,618,231
138,215,010
139,227,376
138,184,295
Earnings per share - diluted
$
1.21
$
1.84
$
2.43
$
2.87
FFO per common share - diluted
$
2.24
$
2.21
$
4.55
$
4.38
Core FFO per common share - diluted
$
2.27
$
2.23
$
4.57
$
4.41
(1) Represents the Company's promoted
interest in AvalonBay Value Added Fund II, L.P.
(2) Amount for 2018 is for the Maplewood
casualty loss, which occurred in Q1 2017, and for which the Company
recognized $3,495 in business interruption insurance proceeds in Q3
2017.
(3) Represents the imputed carry cost of
potential for-sale residential condominium units where construction
is complete and a potential for-sale condominium strategy is being
pursued. The Company computes this adjustment by multiplying the
Total Capital Cost of completed and unsold potential for-sale
residential condominium units by the Company's weighted average
unsecured debt 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 2.5% - 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 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 June
30, 2019 is as follows (dollars in thousands):
TABLE 6
Core EBITDAre
$
369,690
Interest expense, net
$
50,010
Interest Coverage
7.4 times
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 second
quarter 2019 Core EBITDAre, as adjusted. A calculation of Net
Debt-to-Core EBITDAre is as follows (dollars in thousands):
TABLE 7
Total debt principal (1)
$
7,414,889
Cash and cash in escrow
(330,044
)
Net debt
$
7,084,845
Core EBITDAre
$
369,690
Core EBITDAre, annualized
$
1,478,760
Net Debt-to-Core EBITDAre
4.8 times
(1) Balance at June 30, 2019 excludes
$9,346 of debt discount and $35,522 of deferred financing costs as
reflected in unsecured notes, net, and $14,530 of debt discount and
$3,274 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, casualty and impairment loss
(gain), net, gain on sale of communities, (gain) loss on other real
estate transactions 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):
TABLE 8
Q2
Q2
Q1
Q4
YTD
YTD
2019
2018
2019
2018
2019
2018
Net income
$
168,305
$
254,543
$
170,418
$
385,636
$
338,723
$
396,133
Indirect operating expenses, net of
corporate income
23,018
19,677
19,722
21,849
42,740
38,636
Expensed transaction, development and
other pursuit costs, net of recoveries
2,711
1,047
1,095
1,599
3,806
1,847
Interest expense, net
50,010
56,585
47,892
55,180
97,902
111,698
Loss on extinguishment of debt, net
229
642
280
14,775
509
1,039
General and administrative expense
18,965
15,267
13,700
15,738
32,665
29,698
Joint venture (income) loss
(197
)
(789
)
1,060
(2,710
)
863
(2,529
)
Depreciation expense
162,693
156,685
162,057
158,914
324,749
315,743
Casualty and impairment loss (gain),
net
—
—
—
826
—
(58
)
Gain on sale of communities
(20,530
)
(105,201
)
(14,835
)
(242,532
)
(35,365
)
(105,201
)
Gain on other real estate transactions
(34
)
(370
)
(267
)
(9
)
(300
)
(323
)
NOI from real estate assets sold or held
for sale
(1,495
)
(19,680
)
(2,582
)
(12,483
)
(4,077
)
(40,377
)
NOI
$
403,675
$
378,406
$
398,540
$
396,783
$
802,215
$
746,306
Established:
New England
$
41,907
$
40,750
$
41,808
$
42,257
$
83,715
$
80,441
Metro NY/NJ
73,212
70,412
71,843
72,783
145,055
139,429
Mid-Atlantic
51,073
49,917
51,052
51,543
102,125
98,772
Pacific NW
20,605
19,142
20,210
20,868
40,815
37,766
No. California
67,384
66,133
68,238
66,826
135,622
130,946
So. California
72,593
71,482
72,695
72,320
145,288
141,082
Total Established
326,774
317,836
325,846
326,597
652,620
628,436
Other Stabilized
50,813
38,776
49,211
46,871
100,024
75,000
Redevelopment
22,587
22,131
22,040
22,202
44,627
43,396
Development
3,501
(337
)
1,443
1,113
4,944
(526
)
NOI
$
403,675
$
378,406
$
398,540
$
396,783
$
802,215
$
746,306
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 9
Q2
Q2
YTD
YTD
2019
2018
2019
2018
Revenue from real estate assets sold or
held for sale
$
2,591
$
30,024
$
7,193
$
61,857
Operating expenses from real estate assets
sold or held for sale
(1,096
)
(10,344
)
(3,116
)
(21,480
)
NOI from real estate assets sold or held
for sale
$
1,495
$
19,680
$
4,077
$
40,377
Other Stabilized Communities are
completed consolidated communities that the Company owns, which
have Stabilized Operations as of January 1, 2019, or which we
acquired during the year ended June 30, 2019. Other Stabilized
Communities includes stabilized operating communities in the
Company's expansion markets of Denver, Colorado, and Southeast
Florida, but 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 full year 2019 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 10
Low Range
High Range
Projected EPS (diluted) - Full Year
2019
$
5.78
$
5.98
Depreciation (real estate related)
4.62
4.82
Gain on sale of communities
(1.27
)
(1.47
)
Projected FFO per share (diluted) - Full
Year 2019
9.13
9.33
Adjustments related to potential
residential for-sale condominiums at 15 West 61st Street (1)
0.07
0.07
Other income, development pursuit and
other write-offs
0.02
0.02
Income taxes
0.03
0.03
Projected Core FFO per share (diluted) -
Full Year 2019
$
9.25
$
9.45
(1) See the full release for additional
detail.
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 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
is expected to have a material impact on the operations of the
community, including occupancy levels and future rental rates.
Redevelopment Communities include seven communities containing
3,026 apartment homes that are currently under active redevelopment
as of June 30, 2019, with an expected Total Capital Cost of
$135,000,000, of which $48,000,000 is remaining to invest.
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):
TABLE 11
Q2
Q2
YTD
YTD
2019
2018
2019
2018
Rental revenue (GAAP basis)
$
457,192
$
443,331
$
908,912
$
879,977
Concessions amortized
185
1,199
390
2,788
Concessions granted
(118
)
(148
)
(396
)
(792
)
Rental Revenue with Concessions on a Cash
Basis
$
457,259
$
444,382
$
908,906
$
881,973
% change -- GAAP revenue
3.1
%
3.3
%
% change -- cash revenue
2.9
%
3.1
%
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. Total Capital Cost also includes costs incurred related
to first generation retail 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.
Unencumbered NOI as calculated by
the Company represents NOI generated by real estate assets
unencumbered by outstanding secured notes payable as of June 30,
2019 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 six months ended June 30, 2019 is as
follows (dollars in thousands):
TABLE 12
Year to Date
NOI
NOI for Established Communities
$
652,620
NOI for Other Stabilized Communities
100,024
NOI for Redevelopment Communities
44,627
NOI for Development Communities
4,944
NOI from real estate assets sold or held
for sale
4,077
Total NOI generated by real estate
assets
806,292
NOI on encumbered assets
57,578
NOI on unencumbered assets
$
748,714
Unencumbered NOI
93
%
Copyright © 2019 AvalonBay Communities, Inc.
All Rights Reserved
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version on businesswire.com: https://www.businesswire.com/news/home/20190731005987/en/
Jason Reilley Vice President of Investor Relations
703-317-4681
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