AVALONBAY COMMUNITIES, INC. (NYSE: AVB) (the “Company”)
today announced that it has taken various actions to mitigate the
effect on its residents, associates and business from the national
emergency that has arisen as a result of the coronavirus
pandemic.
AvalonBay is committed to the health and safety of its
associates and residents, and the Company began implementing many
new protocols based on the Centers for Disease Control (CDC) and
other government-mandated guidelines, including establishing
social-distancing procedures and other safety and operating
measures. At our communities, AvalonBay has made changes to its
daily operations that include the following -
- Community office practices have been modified to minimize
in-person contact, with resident support being provided through
phone and e-mail communications where possible and by leveraging
the Company's digital solutions and centralized Customer Care
Center.
- Communities have implemented enhanced cleaning and disinfecting
protocols and closed all amenities.
- Maintenance requests are being completed for essential or
emergency services only and maintenance associates have been
instructed on proper personal protective equipment (PPE) to use
when performing work.
- Prospect tours are being completed on a self-guided basis or
through virtual channels.
AvalonBay has also adopted certain measures to help mitigate the
financial impact arising from the national emergency on its
residents that include the following -
- Waiving late fees.
- Providing flexible lease renewal options at no rent increase
for leases expiring through June 30, 2020.
- Creating payment plans for residents who are unable to pay
their rent because they are impacted by this national
emergency.
To support our associates during this difficult time, the
Company has elected to adopt new, temporary leave policies and is
providing all regular, full- and part-time associates with up to
four weeks of emergency paid leave to use in the event they or
their families have been materially impacted by the
coronavirus.
In addition to these measures, AvalonBay announced the following
–
Operating Update
- Total rental revenue for Established Communities for the two
months ending February 29, 2020 increased 3.2% over the prior year
period.
- Blended Like-Term Effective Rent Change for Established
Communities for the two months ending February 29, 2020 was 1.6%,
versus 2.6% during the same period last year.
- Through the week ending March 22, 2020, Blended Like-Term
Effective Rent Change for Established Communities for March 2020
was 2.3%, versus 2.9% for the month of March 2019.
- Physical occupancy for Established Communities for the week
ending March 22, 2020 was 96.1%, versus 95.8% during the same week
in March 2019.
- 30- and 60-day Availability for Established Communities was
4.7% and 5.7%, respectively, for the week ending March 22, 2020
versus 5.1% and 6.2%, respectively, during the same week in
2019.
2020 Outlook
- Due to the inherent uncertainty surrounding the social and
economic disruption from this national emergency, the Company
believes it is appropriate to withdraw its full-year 2020 outlook,
which was included in its February 5, 2020 earnings release, and it
does not plan to provide an update to its full-year 2020 outlook
until there is further clarity on economic conditions.
Recent Capital Activity and Current
Liquidity
- The Company does not have a commercial paper program.
- The Company has drawn $750 million from its $1.75 billion
credit facility during this period of elevated uncertainty. The
Company’s credit facility matures on February 28, 2024.
- Considering the Company’s (i) existing cash balance of
approximately $755 million, which includes the aforementioned $750
million draw from its credit facility, and (ii) remaining borrowing
capacity under its $1.75 billion credit facility, the Company has
access to approximately $1.8 billion of liquidity as of the date of
this press release.
Investment Activity Update
- The Company has not started the construction of any new
development communities in 2020, and it will evaluate future starts
on an individual basis, based on evolving economic and market
conditions. In addition, the Company has begun taking action to
substantially reduce redevelopment and other non-essential capex
investment.
- As of the end of 2019, the Company had 22 development
communities under construction. As of the date of this release, (i)
the construction of three of these development communities is
substantially complete, (ii) the construction at four of the
Company’s remaining 19 development communities has been suspended
at the Company’s discretion after considering state and local
advisories, and (iii) the construction at the Company’s remaining
development communities has been substantially slowed due to the
impact of safety precautions on labor availability and inspection
constraints. The Company may be required to, or may in its
discretion, suspend ongoing construction at one or more of these
remaining development communities as a result of either (i)
governmental actions or (ii) social or economic conditions arising
from this national emergency.
- Based on the Company’s projections as of the date of this press
release, which assumes (i) estimated suspension periods for the
Company’s current development projects where construction has been
halted and other expected delays, and (ii) reduced redevelopment
and other non-essential capex investment, the Company currently
expects to spend approximately $400 million over the balance of
2020 and approximately $400 million in 2021 on these investment
activities. Due to ongoing developments and uncertainties related
to the coronavirus, these projections are subject to change, and we
do not undertake any obligation to update these projections, as
stated later in this press release.
Other Items
The Company has approximately $68 million of secured debt
maturities and amortization remaining in 2020 and approximately
$328 million of unsecured and secured debt maturities and
amortization in 2021.
As of December 31, 2019, the Company’s Net Debt-to-Core EBITDAre
was 4.6x and Unencumbered NOI was 93%, and 248 of its 262
consolidated operating communities, not including development
communities, were unencumbered with a mortgage, providing a
substantial source of potential additional liquidity through
mortgage financing.
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 still many unknowns, including the duration of the
pandemic, the extent of the adverse health impact on the general
population and on our residents and employees in particular, its
impact on the employment rate and the economy, the extent of
governmental responses (including actions such as those that have
already occurred and that may vary by jurisdiction, such as
mandated business closings; stay-at-home orders for all but
essential activities; limits on group activity; and actions to
protect residential tenants from eviction), and the impact of new
practices we implement in response to the pandemic, such as changes
to leasing practices to enable social distancing, adjusted payment
terms for residents affected by the pandemic, and extra paid
emergency leave for employees affected by the pandemic. These
uncertainties could affect many aspects of our business, including
our occupancy rate, bad debt experience with residential and retail
tenants, ability to complete construction projects on time and
within budget, and the ability of counterparties, including
vendors, subcontractors and lenders, to fulfill their obligations.
Other risks and uncertainties include the following: 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;
and 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 realize. 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, 2019 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 and the format and extent of future disclosures may be
different from the format and extent of the information contained
in this release.
Definitions and Reconciliations
Availability is calculated as the
number of apartment homes that are not leased during a specific
time period divided by the total number of apartment homes
(excluding model apartment homes and apartment homes that have been
taken out of service).
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 2020 operating results, Established Communities are
consolidated communities that had Stabilized Operations as of
January 1, 2019, 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. A community is
considered to have Stabilized Operations at the earlier of (i)
attainment of 90% physical occupancy or (ii) the one-year
anniversary of completion of development or redevelopment.
Like-Term Effective Rent Change
represents the percentage change in effective rent between two
leases of the same lease term category for the same apartment. The
Company defines effective rent as the contractual rent for an
apartment less amortized concessions and discounts. Blended
Like-Term Effective Rent Change is weighted based on the number of
leases meeting the criteria for new move-in and renewal like-term
effective rent change. New move-in like-term effective rent change
is the change in effective rent between the contractual rent for a
resident who moves out of an apartment, and the contractual rent
for a resident who moves into the same apartment with the same
lease term category. Renewal like-term effective rent change is the
change in effective rent between two consecutive leases of the same
lease term category for the same resident occupying the same
apartment.
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 noncore
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):
Q419 Net income
167,671
Interest expense, net, inclusive of loss on extinguishment of debt,
net
54,190
Income tax expense
1,825
Depreciation expense
171,364
EBITDA
$
395,050
Gain on sale of communities
(256
)
Joint venture EBITDAre adjustments
(2,079
)
EBITDAre
392,715
Gain on other real estate transactions
(65
)
Lost NOI from casualty losses covered by business interruption
insurance
265
Business interruption insurance proceeds
(527
)
Advocacy contributions
50
Severance related costs
60
Development pursuit write-offs and expensed transaction costs, net
2,093
For-sale condominium marketing and administrative costs
1,286
Asset management fee intangible write-off and other joint venture
losses
52
Legal settlements
(2,221
)
Core EBITDAre
$
393,708
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 fourth
quarter 2019 Core EBITDAre, as adjusted. A calculation of Net
Debt-to-Core EBITDAre is as follows (dollars in thousands):
Total debt principal (1)
$
7,355,371
Cash and cash in escrow
(127,614
)
Net debt
$
7,227,757
Core EBITDAre
$
393,708
Core EBITDAre, annualized
$
1,574,832
Net Debt-to-Core EBITDAre
4.6 times
(1) Balance at December 31, 2019 excludes $8,610 of debt
discount and $32,742 of deferred financing costs as reflected in
unsecured notes, net, and $14,464 of debt discount and $3,265 of
deferred financing costs as reflected in notes payable on the
Condensed Consolidated Balance Sheets.
Unencumbered NOI as calculated by
the Company represents NOI generated by real estate assets
unencumbered by outstanding secured notes payable as of December
31, 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 year ended December 31, 2019 is as
follows (dollars in thousands):
Full Year 2019
Net income
$
786,103
Indirect operating expenses, net of corporate income
83,008
Expensed transaction, development and other pursuit costs, net of
recoveries
4,991
Interest expense, net
203,585
Loss on extinguishment of debt, net
602
General and administrative expense
58,042
Joint venture (income) loss
(8,652
)
Depreciation expense
661,578
Income tax expense (benefit)
13,003
Gain on sale of communities
(166,105
)
Gain on other real estate transactions
(439
)
For-sale condominium marketing and administrative costs
3,812
NOI from real estate assets sold or held for sale
(12,318
)
NOI
$
1,627,210
Established: New England
$
164,977
Metro NY/NJ
291,662
Mid-Atlantic
207,091
Pacific NW
82,186
No. California
280,216
So. California
291,340
Total Established
1,317,472
Other Stabilized
202,445
Redevelopment
83,052
Development
24,241
NOI
$
1,627,210
Full Year 2019 NOI NOI for Established Communities
$
1,317,472
NOI for Other Stabilized Communities
202,445
NOI for Redevelopment Communities
83,052
NOI for Development Communities
24,241
NOI from real estate assets sold or held for sale
12,318
Total NOI generated by real estate assets
$
1,639,528
NOI on encumbered assets
109,454
NOI on unencumbered assets
$
1,530,074
Unencumbered NOI
93
%
About AvalonBay Communities, Inc.
As of December 31, 2019, the Company owned or held a direct or
indirect ownership interest in 297 apartment communities containing
86,846 apartment homes in 11 states and the District of Columbia,
of which 22 communities were under development and two 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200325005737/en/
Jason Reilley Vice President Investor Relations AvalonBay
Communities, Inc. 703-317-4681
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