AvalonBay Communities, Inc. (NYSE: AVB) (the “Company”) reported
today that Net Income Attributable to Common Stockholders for the
three months ended December 31, 2020 was $341,128,000. This
resulted in an increase in Earnings per Share – diluted (“EPS”) for
the three months ended December 31, 2020 of 103.3% to $2.44 from
$1.20 for the prior year period, primarily attributable to an
increase in gain on sale of real estate and depreciation expense,
partially offset by a decrease in Established Community NOI, as
detailed in the table below.
Funds from Operations attributable to common stockholders -
diluted (“FFO”) per share for the three months ended December 31,
2020 decreased 18.9% to $1.93 from $2.38 for the prior year period.
Core FFO per share (as defined in this release) for the three
months ended December 31, 2020 decreased 16.9% to $2.02 from $2.43
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 December 31, 2020 to its results for the prior year
period:
Q4 2020 Results Compared to Q4
2019
Per Share (1)
EPS
FFO
Core FFO
Q4 2019 per share reported results
$
1.20
$
2.38
$
2.43
Established Community NOI (2)
(0.39)
(0.39)
(0.39)
Development and Other Stabilized Community
NOI
0.03
0.03
0.03
Capital markets and transaction
activity
—
—
(0.03)
Joint venture income
(0.02)
(0.02)
(0.02)
Overhead and other
(0.10)
(0.10)
—
Income taxes
0.03
0.03
—
Gain on sale of real estate and
depreciation expense
1.69
—
—
Q4 2020 per share reported results
$
2.44
$
1.93
$
2.02
(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 $0.12 over the
prior year period.
For the year ended December 31, 2020, EPS increased 4.6% to
$5.89 from $5.63 for the prior year, FFO per share decreased 8.0%
to $8.45 from $9.18 for the prior year, and Core FFO per share
decreased 7.0% to $8.69 from $9.34 for the prior year.
The following table compares the Company’s actual results for
EPS, FFO per share and Core FFO per share for the year ended
December 31, 2020 to its results for the prior year:
Full Year 2020 Results
Comparison to Full Year
2019
Per Share (1)
EPS
FFO
Core FFO
2019 per share reported results
$
5.63
$
9.18
$
9.34
Established Community NOI (2)
(0.69)
(0.69)
(0.68)
Development and Other Stabilized Community
NOI
0.26
0.26
0.26
Capital markets and transaction
activity
(0.16)
(0.18)
(0.15)
Joint venture income
(0.06)
(0.06)
(0.06)
Overhead and other
(0.18)
(0.18)
(0.02)
Income taxes
0.12
0.12
—
Gain on sale of real estate and
depreciation expense
0.97
—
—
2020 per share reported results
$
5.89
$
8.45
$
8.69
(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 $0.32 over the
prior year.
Established Communities Operating Results for the Three
Months Ended December 31, 2020 Compared to the Prior Year
Period
For Established Communities, total revenue decreased
$46,103,000, or 8.7%, to $485,961,000. Residential and commercial
uncollectible lease revenue contributed $16,613,000 of this
decrease, comprised of $11,217,000 for residential and $5,396,000
for commercial. Operating expenses for Established Communities
increased $8,614,000, or 5.8%, to $157,359,000. NOI for Established
Communities decreased $54,717,000, or 14.3%, to $328,602,000.
Rental revenue for Established Communities decreased 8.6%, as
detailed in the following table:
Established Communities Change
in Rental Revenue
Q4 2020 Compared to Q4
2019
Residential rental revenue
Lease rates
(2.2)
%
Concessions and other discounts
(1.7)
%
Economic occupancy
(1.6)
%
Other rental revenue
—
%
Uncollectible lease revenue (1)
(2.1)
%
Total residential rental revenue
(7.6)
%
Commercial rental revenue (2)
(1.0)
%
Total Established Communities change in
rental revenue
(8.6)
%
(1) Uncollectible lease revenue increased
$11,217,000 over the prior year period to $14,346,000, or 2.87% of
total residential revenue, as compared to 0.59% of total
residential revenue for the prior year period.
(2) Consists primarily of $5,766,000 of
recognized uncollectible commercial lease revenue, of which
$4,567,000 represents the write-off of straight line rent
receivables.
The following table reflects the percentage changes in rental
revenue, operating expenses and NOI for Established Communities for
the three months ended December 31, 2020 compared to the three
months ended December 31, 2019:
Q4 2020 Compared to Q4
2019
Rental Revenue (1)
Opex (2)
% of NOI (3)
Residential
Commercial
NOI
New England
(6.3)
%
(0.7)
%
4.0
%
(12.4)
%
14.7
%
Metro NY/NJ
(6.1)
%
(1.4)
%
2.8
%
(11.8)
%
22.8
%
Mid-Atlantic
(7.1)
%
(0.3)
%
7.8
%
(13.2)
%
15.5
%
Pacific NW
(5.9)
%
(3.0)
%
13.1
%
(17.6)
%
6.1
%
No. California
(12.3)
%
(0.7)
%
7.1
%
(19.0)
%
18.8
%
So. California
(7.2)
%
(1.1)
%
6.4
%
(14.1)
%
20.0
%
Expansion Mkts
0.9
%
—
%
3.3
%
(0.9)
%
2.1
%
Total
(7.6)
%
(1.0)
%
5.8
%
(14.3)
%
100.0
%
(1) Represents the change as a percent of
total rental revenue. See full release for additional detail.
(2) See full release for discussion of
variances.
(3) Represents % of total NOI for Q4 2020,
including amounts related to communities that have been sold or
that are classified as held for sale.
Established Communities Operating Results for the Year Ended
December 31, 2020 Compared to the Prior Year
For Established Communities, total revenue decreased
$78,971,000, or 3.7%, to $2,028,317,000. Residential and commercial
uncollectible lease revenue contributed $43,970,000 of this
decrease, comprised of $33,768,000 for residential and $10,202,000
for commercial. Operating expenses for Established Communities
increased $17,424,000, or 2.9%, to $621,412,000. NOI for
Established Communities decreased $96,395,000, or 6.4%, to
$1,406,905,000.
Rental revenue for Established Communities decreased 3.7%, as
detailed in the following table:
Established Communities Change
in Rental Revenue
Full Year 2020 Compared to
Full Year 2019
Residential rental revenue
Lease rates
0.5
%
Concessions and other discounts
(0.7)
%
Economic occupancy
(1.3)
%
Other rental revenue
(0.1)
%
Uncollectible lease revenue (1)
(1.6)
%
Total residential rental revenue
(3.2)
%
Commercial rental revenue (2)
(0.5)
%
Total Established Communities change in
rental revenue
(3.7)
%
(1) Uncollectible lease revenue increased
$33,768,000 over the prior year to $44,829,000, or 2.18% of total
residential revenue, as compared to 0.53% of total residential
revenue for the prior year.
(2) Consists primarily of $11,157,000 of
recognized uncollectible commercial lease revenue, of which
$5,514,000 represents the write-off of straight line rent
receivables.
The following table reflects the percentage changes in rental
revenue, operating expenses and NOI for Established Communities for
the year ended December 31, 2020 compared to the year ended
December 31, 2019:
Full Year 2020 Compared to
Full Year 2019
Rental Revenue (1)
Opex (2)
% of NOI (3)
Residential
Commercial
NOI
New England
(1.7)
%
(0.3)
%
3.6
%
(4.8)
%
14.5
%
Metro NY/NJ
(3.6)
%
(0.7)
%
1.3
%
(6.7)
%
22.2
%
Mid-Atlantic
(2.6)
%
(0.3)
%
2.7
%
(5.2)
%
15.5
%
Pacific NW
(1.8)
%
(1.4)
%
7.8
%
(7.4)
%
6.3
%
No. California
(4.5)
%
(0.3)
%
3.5
%
(7.3)
%
19.8
%
So. California
(3.5)
%
(0.7)
%
2.8
%
(7.1)
%
19.8
%
Expansion Mkts
(0.6)
%
—
%
0.7
%
(1.5)
%
1.9
%
Total
(3.2)
%
(0.5)
%
2.9
%
(6.4)
%
100.0
%
(1) Represents the change as a percent of
total rental revenue. See full release for additional detail.
(2) See full release for discussion of
variances.
(3) Represents % of total NOI for Full
Year 2020, 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 Q4 2020
as of each respective quarter end, as well as through January 31,
2021 for the periods presented. Collected residential revenue
represents 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 January 31, 2021
(3)(4)
Q2 2020
95.4%
98.1%
Q3 2020
95.2%
97.1%
Q4 2020
94.8%
95.9%
(1) Collections presented reflect the
Company’s Established Communities as of December 31, 2020 and
excludes commercial revenue, which was 0.7% and 1.2% 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 and December 31, 2020 for Q4 2020, respectively.
(3) The percentage of Collected
Residential Revenue as of January 31, 2021.
(4) Collected Residential Revenue for
January 2021 as of January 31, 2021 was 92.9%, which is 94.9% of
the AVB Residential Benchmark.
For further discussion of collection rates and limitations on
use of this data, see Definitions and Reconciliations.
The ongoing impact from COVID-19 on the Company's consolidated
results of operations will be affected by the duration and severity
of the pandemic, and how quickly and to what extent normal economic
and operating conditions resume. Because of these factors, the
Company's historical results, including results for the three
months and year ended December 31, 2020 and information through
February 3, 2021, may not be indicative of results for future
periods.
Development Activity
During the three months ended December 31, 2020, the Company
completed the development of four consolidated apartment
communities:
- Avalon Marlborough II, located in Marlborough, MA;
- Avalon Towson, located in Towson, MD;
- Avalon Walnut Creek II, located in Walnut Creek, CA; and
- Avalon Doral, located in Doral, FL.
These communities contain an aggregate of 1,044 apartment homes
and were constructed for a Total Capital Cost of $385,000,000.
During the three months ended December 31, 2020, the Company
started the construction of three consolidated apartment
communities:
- Avalon Harbor Isle, located in Island Park, NY;
- Avalon Easton II, located in Easton, MA; and
- Avalon Somerville Station, located in Somerville, NJ.
These communities are expected to contain an aggregate of 591
apartment homes and are expected to be developed for an aggregate
estimated Total Capital Cost of $221,000,000.
During the year ended December 31, 2020, the Company completed
the development of eight consolidated communities containing an
aggregate of 2,095 apartment homes for an aggregate Total Capital
Cost of $777,000,000. During the year ended December 31, 2020, the
Company started the construction of three consolidated apartment
communities and one unconsolidated apartment community.
At December 31, 2020, the Company had 16 consolidated
Development Communities under construction that in the aggregate
are expected to contain 5,128 apartment homes and 62,000 square
feet of commercial space. Estimated Total Capital Cost at
completion for these Development Communities is $1,951,000,000. As
of December 31, 2020, the Company has an estimated remaining Total
Capital Cost of $559,000,000 to invest over the next several years
on the 16 Development Communities under construction and recently
completed Development Communities.
At December 31, 2020, 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. Estimated Total Capital Cost at completion for
these Unconsolidated Development Communities is $386,000,000, with
an estimated remaining equity investment of the Company of
$38,400,000 after expected loan proceeds as of December 31, 2020.
See the full release for further discussion.
During the three months ended December 31, 2020, the Company
acquired three land parcels for future development, for an
aggregate investment of $77,350,000.
Disposition Activity
Consolidated Apartment Communities
During the three months ended December 31, 2020, the Company
sold six wholly-owned operating communities:
- Avalon Somerset, located in Somerset, NJ;
- Eaves San Rafael, located in San Rafael, CA;
- Avalon Cohasset, located in Cohasset, MA;
- Avalon Wilton on Danbury Rd, located in Wilton, CT;
- Avalon Stratford, located in Stratford, CT; and
- Eaves Diamond Heights, located in San Francisco, CA.
In aggregate, the six communities contain 1,242 apartment homes
and were sold for $444,100,000, resulting in a gain in accordance
with GAAP of $249,122,000 and an Economic Gain of $160,460,000.
In January 2021, the Company sold eaves Stamford, a wholly-owned
operating community, located in Stamford, CT, that contains 238
apartment homes, for $72,000,000.
During the year ended December 31, 2020, the Company sold nine
wholly-owned operating communities containing an aggregate of 1,817
apartment homes. These assets were sold for $627,750,000 and a
weighted average Initial Market Cap Rate of 4.4%, resulting in a
gain in accordance with GAAP of $340,444,000 and an Economic Gain
of $210,701,000.
During the three months and year ended December 31, 2020, the
Company sold 11 and 70 of the 172 residential condominiums at The
Park Loggia, located in New York, NY, for gross proceeds of
$33,860,000 and $216,372,000, respectively. At December 31, 2020,
69% 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 $5,940,000
Liquidity and Capital Markets
At December 31, 2020, the Company did not have any borrowings
outstanding under its $1,750,000,000 unsecured credit facility, and
had $313,532,000 in unrestricted cash and cash in escrow.
The Company’s annualized Net Debt-to-Core EBITDAre (as defined
in this release) for the fourth quarter of 2020 was 5.4 times and
Unencumbered NOI (as defined in this release) was 94%.
During the year ended December 31, 2020, the Company had the
following debt activity:
- In public offerings under its existing shelf registration
statement, the Company issued (i) $700,000,000 principal amount of
unsecured notes for net proceeds of $694,701,000, maturing in March
2030 and with a 2.30% coupon and an effective interest rate of
2.68%, including the impact of an interest rate hedge and offering
costs and (ii) $600,000,000 principal amount of unsecured notes for
net proceeds of $593,430,000, maturing in January 2031 with a 2.45%
coupon and an effective interest rate of 2.65%, including the
impact of an interest rate hedge and offering costs.
- The Company borrowed $51,000,000 under a mortgage note with a
maturity date of March 2027 and a contractual interest rate of
2.38%, in conjunction with the refinancing of $50,616,000 of
secured indebtedness that had a contractual interest rate of
3.08%.
- The Company repaid (i) $400,000,000 principal amount of its
3.625% unsecured notes in advance of the October 2020 scheduled
maturity and (ii) $250,000,000 principal amount of its 3.95%
unsecured notes in advance of the January 2021 scheduled maturity.
In conjunction with these repayments, the Company recognized a loss
on debt extinguishment of $9,170,000 composed of prepayment
penalties and the non-cash write-off of unamortized deferred
financing costs.
- The Company repaid $300,000,000 principal amount of its
variable rate unsecured notes at par in advance of the January 2021
scheduled maturity.
- The Company repaid $67,904,000 principal amount of 4.18% fixed
rate debt secured by Avalon Hoboken at par in advance of its
December 2020 maturity date.
Stock Repurchase Program
In July 2020, the Company’s Board of Directors approved a new
stock repurchase program under which the Company may acquire shares
of its common stock in open market or negotiated transactions up to
an aggregate purchase price of $500,000,000. This authority may be
exercised from time to time in the Company’s discretion and in such
amounts as market conditions warrant. The timing and actual number
of shares repurchased will depend on a variety of factors including
price, corporate and regulatory requirements, market conditions and
other corporate liquidity requirements and priorities. The stock
repurchase program does not have an expiration date and may be
suspended or terminated at any time without prior notice. The
Company intends that funds used for the stock repurchase program
will be matched over time with the proceeds from sales of existing
apartment communities and in some cases with newly issued debt, but
initially may be funded from existing cash balances, retained cash
flow and/or the Company's line of credit.
Under this program, during the three months and year ended
December 31, 2020, the Company repurchased 313,057 shares of common
stock at an average price of $148.25 per share and 1,225,790 shares
of common stock at an average price of $149.99 per share,
respectively.
First Quarter 2021 Financial Outlook
The following presents a summary of the Company's financial
outlook for 2021, further details for which are provided in the
full release.
For its first quarter 2021 financial outlook, the Company
expects the following:
Projected EPS, Projected FFO
and Projected Core FFO Outlook (1)
Q1 2021
Low
High
Projected EPS
$0.91
-
$1.01
Projected FFO per share
$1.81
—
$1.91
Projected Core FFO per share
$1.85
—
$1.95
(1) See Definitions and Reconciliations,
table 7, for reconciliations of Projected FFO per share and
Projected Core FFO per share to Projected EPS.
First Quarter Conference Schedule
Management is scheduled to present at Citi's Global Property CEO
Conference from March 8 - 11, 2021. During this conference,
management may discuss the Company's current operating environment;
operating trends; development, redevelopment, disposition and
acquisition activity; financial outlook; 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 February 4, 2021 at
1:00 PM ET to review and answer questions about this release, its
fourth quarter 2020 results and 2021 outlook, the Attachments
(described below) and related matters. To participate on the call,
dial 800-458-4121 and use conference id: 1919406.
To hear a replay of the call, which will be available from
February 4, 2021 at 6:00 PM ET to February 11, 2021 at 6:00 PM ET,
dial 888-203-1112 and use conference id: 1919406. 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 February 4, 2021.
About AvalonBay Communities, Inc.
As of December 31, 2020, the Company owned or held a direct or
indirect ownership interest in 291 apartment communities containing
86,025 apartment homes in 11 states and the District of Columbia,
of which 18 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, the Pacific
Northwest, and Northern and Southern California, as well as in the
Company's expansion markets consisting of Southeast Florida and
Denver, Colorado (the "Expansion Markets"). 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 and timing of the
vaccine availability 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. 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, 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, 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 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.
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 rental revenue in accordance with GAAP, divided
by the weighted average number of occupied apartment homes.
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 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 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
year ended December 31, 2020 is presented elsewhere in the full
release.
Established Communities are
consolidated communities in the markets where the Company has a
significant presence, including the Company's Expansion Markets of
Southeast Florida and Denver, Colorado, 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 2020 operating results,
Established Communities are consolidated communities that have
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.
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 and year ended December 31, 2020.
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 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 1
Q4
2020
Net income
$
341,114
Interest expense, net (1)
51,589
Income tax benefit
(2,178)
Depreciation expense
177,823
EBITDA
$
568,348
Gain on sale of communities
(249,106)
Joint venture EBITDAre adjustments (2)
3,294
EBITDAre
$
322,536
Gain on other real estate transactions
(112)
Business interruption insurance
proceeds
—
Advocacy contributions
5,484
Severance related costs
27
Development pursuit write-offs and
expensed transaction costs, net
7,907
Gain on for-sale condominiums
(39)
For-sale condominium marketing, operating
and administrative costs
1,650
Asset management fee intangible
write-off
—
Legal settlements
455
Core EBITDAre
$
337,908
(1) Includes gains and losses on
extinguishment of debt and interest rate contracts, 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 2
Q4
Q4
Full Year
Full Year
2020
2019
2020
2019
Net income attributable to common
stockholders
$
341,128
$
167,650
$
827,630
$
785,974
Depreciation - real estate assets,
including joint venture adjustments
176,840
171,314
704,331
666,563
Distributions to noncontrolling
interests
12
12
48
46
Gain on sale of unconsolidated entities
holding previously depreciated real estate
—
(5,788)
(5,157)
(5,788)
Gain on sale of previously depreciated
real estate
(249,106)
(256)
(340,444)
(166,105)
FFO attributable to common
stockholders
268,874
332,932
1,186,408
1,280,690
Adjusting items:
Joint venture losses
289
87
375
87
Business interruption insurance
proceeds
—
(527)
(385)
(1,441)
Lost NOI from casualty losses covered by
business interruption insurance
—
265
48
675
Loss on extinguishment of consolidated
debt
—
—
9,333
602
Gain on interest rate contract
(2,894)
—
(2,894)
—
Advocacy contributions
5,484
50
8,558
50
Severance related costs
27
60
2,142
2,327
Development pursuit write-offs and
expensed transaction costs, net (1)
7,907
2,093
11,443
3,782
Gain on for-sale condominiums (2)
(39)
—
(8,213)
—
For-sale condominium marketing, operating
and administrative costs (2)
1,650
1,286
5,662
3,812
For-sale condominium imputed carry cost
(3)
2,304
4,121
11,317
6,351
Gain on other real estate transactions
(112)
(65)
(440)
(439)
Legal settlements (4)
455
(2,221)
490
(6,292)
Income tax (benefit) expense (5)
(2,178)
1,825
(3,247)
13,003
Core FFO attributable to common
stockholders
$
281,767
$
339,906
$
1,220,597
$
1,303,207
Average shares outstanding - diluted
139,632,368
139,968,027
140,435,195
139,571,550
Earnings per share - diluted
$
2.44
$
1.20
$
5.89
$
5.63
FFO per common share - diluted
$
1.93
$
2.38
$
8.45
$
9.18
Core FFO per common share - diluted
$
2.02
$
2.43
$
8.69
$
9.34
(1) Amounts for 2020 include the write-off
of $7,264 for a development opportunity in New York City, with a
projected Total Capital Cost of $688,000, that the Company no
longer expects is probable.
(2) Aggregate impact of (i) Gain on
for-sale condominiums and (ii) For-sale condominium marketing,
operating and administrative costs, is a net expense of $1,611 for
Q4 2020 and a net gain of $2,551 for full year 2020, and an expense
of $1,286 and $3,812 for Q4 and full year 2019, respectively.
(3) 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.
(4) Amounts for 2019 include $2,237 in
legal settlement proceeds related to a construction defect at a
community, and amount for full year 2019 also includes $3,126 in
legal settlement proceeds related to a former development
opportunity.
(5) The benefit for Q4 and full year 2020
relates to tax losses generated through taxable REIT subsidiaries
("TRS") as well as provisions of the Coronavirus Aid, Relief, and
Economic Security Act. Amount for full year 2019 consists of $5,782
related to GAAP to tax basis differences at The Park Loggia
development and $7,221 related to the other activity the Company
undertook in our TRS, including the disposition of two wholly-owned
operating communities and deferred tax obligations related to the
Company's sustainability initiatives.
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
December 31, 2020 is as follows (dollars in thousands):
TABLE 3
Core EBITDAre
$
337,908
Interest expense, net
$
51,589
Interest Coverage
6.6 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 fourth
quarter 2020 Core EBITDAre, as adjusted. A calculation of Net
Debt-to-Core EBITDAre is as follows (dollars in thousands):
TABLE 4
Total debt principal (1)
$
7,629,814
Cash and cash in escrow
(313,532)
Net debt
$
7,316,282
Core EBITDAre
$
337,908
Core EBITDAre, annualized
$
1,351,632
Net Debt-to-Core EBITDAre
5.4 times
(1) Balance at December 31, 2020 excludes
$10,380 of debt discount and $37,615 of deferred financing costs as
reflected in unsecured notes, net, and $14,478 of debt discount and
$3,004 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.
A reconciliation of NOI to Net Income, as well as a breakdown of
NOI by operating segment, is as follows (dollars in thousands):
TABLE 5
Q4
Q4
Q3
Q2
Q1
Full Year
Full Year
2020
2019
2020
2020
2020
2020
2019
Net income
$
341,114
$
167,671
$
147,717
$
170,869
$
168,006
$
827,706
$
786,103
Indirect operating expenses, net of
corporate income
27,400
20,073
23,837
23,407
22,799
97,443
83,008
Expensed transaction, development and
other pursuit costs, net of recoveries
8,110
2,428
567
388
3,334
12,399
4,991
Interest expense, net
51,589
54,190
53,249
53,399
55,914
214,151
203,585
(Gain) loss on extinguishment of debt,
net
—
—
(105)
268
9,170
9,333
602
General and administrative expense
13,465
12,602
13,985
15,573
17,320
60,343
58,042
Joint venture loss (income)
348
(7,872)
(5,083)
(512)
(1,175)
(6,422)
(8,652)
Depreciation expense
177,823
171,364
175,348
176,249
177,911
707,331
661,578
Income tax (benefit) expense
(2,178)
1,825
(27)
(1,133)
91
(3,247)
13,003
Gain on sale of communities
(249,106)
(256)
(31,607)
(35,295)
(24,436)
(340,444)
(166,105)
Gain on other real estate transactions
(112)
(65)
(129)
(156)
(43)
(440)
(439)
Net for-sale condominium activity
1,611
1,286
646
(1,348)
(3,460)
(2,551)
3,812
NOI from real estate assets sold or held
for sale
(5,242)
(9,399)
(7,069)
(7,599)
(8,502)
(28,412)
(45,354)
NOI
$
364,822
$
413,847
$
371,329
$
394,110
$
416,929
$
1,547,190
$
1,594,174
Established:
New England
$
45,595
$
52,076
$
46,358
$
50,125
$
50,976
$
193,053
$
202,812
Metro NY/NJ
73,443
83,244
73,797
75,964
82,204
305,408
327,356
Mid-Atlantic
56,177
64,712
56,190
60,041
64,655
237,063
250,142
Pacific NW
17,051
20,687
18,578
19,626
20,838
76,093
82,186
No. California
62,245
76,875
67,530
75,408
77,829
283,012
305,450
So. California
70,719
82,324
71,125
74,601
82,455
298,900
321,776
Expansion Markets
3,372
3,401
3,015
3,561
3,428
13,376
13,578
Total Established
328,602
383,319
336,593
359,326
382,385
1,406,905
1,503,300
Other Stabilized
22,602
22,724
22,834
23,108
23,496
92,040
74,814
Development/Redevelopment
13,618
7,804
11,902
11,676
11,048
48,245
16,060
NOI
$
364,822
$
413,847
$
371,329
$
394,110
$
416,929
$
1,547,190
$
1,594,174
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 6
Q4
Q4
Q3
Q2
Q1
Full Year
Full Year
2020
2019
2020
2020
2020
2020
2019
Revenue from real estate assets sold or
held for sale
$
8,445
$
14,385
$
11,459
$
11,919
$
13,127
$
44,951
$
73,168
Operating expenses from real estate assets
sold or held for sale
(3,203)
(4,986)
(4,390)
(4,320)
(4,625)
(16,539)
(27,814)
NOI from real estate assets sold or held
for sale
$
5,242
$
9,399
$
7,069
$
7,599
$
8,502
$
28,412
$
45,354
Other Stabilized Communities are
completed consolidated communities that the Company owns, which
have Stabilized Operations as of January 1, 2020, or which were
acquired subsequent to January 1, 2019. 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 first 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 7
Low Range
High Range
Projected EPS (diluted) - Q1 2021
$
0.91
$
1.01
Depreciation (real estate related)
1.26
1.30
Gain on sale of communities
(0.36)
(0.40)
Projected FFO per share (diluted) - Q1
2021
1.81
1.91
Adjustments related to residential
for-sale condominiums at The Park Loggia (1)
0.02
0.02
Executive transition costs
0.02
0.02
Projected Core FFO per share (diluted) -
Q1 2021
$
1.85
$
1.95
(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 (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 December 31,
2020.
Rental Revenue with Residential
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 residential concessions on GAAP-based rental revenue and
to more readily enable comparisons to revenue as reported by other
companies. In addition, Rental Revenue with Residential Concessions
on a Cash Basis allows an investor to understand the historical
trend in residential cash concessions.
A reconciliation of rental revenue from Established Communities
in conformity with GAAP to Rental Revenue with Residential
Concessions on a Cash Basis is as follows (dollars in
thousands):
TABLE 8
Q4
Q4
Full Year
Full Year
2020
2019
2020
2019
Rental revenue (GAAP basis)
$
485,735
$
531,456
$
2,026,719
$
2,104,521
Residential concessions amortized
10,139
375
18,117
2,153
Residential concessions granted
(19,466)
(451)
(46,638)
(1,522)
Rental Revenue with Residential
Concessions
on a Cash Basis
$
476,408
$
531,380
$
1,998,198
$
2,105,152
% change -- GAAP revenue
(8.6)
%
(3.7)
%
% change -- cash revenue
(10.3)
%
(5.1)
%
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 December
31, 2020 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, 2020 is as
follows (dollars in thousands):
TABLE 9
Full Year 2020
NOI
NOI for Established Communities
$
1,406,905
NOI for Other Stabilized Communities
92,040
NOI for Development/Redevelopment
Communities
48,245
NOI from real estate assets sold or held
for sale
28,412
Total NOI generated by real estate
assets
1,575,602
NOI on encumbered assets
94,775
NOI on unencumbered assets
$
1,480,827
Unencumbered NOI
94
%
Copyright © 2021 AvalonBay Communities, Inc. All Rights
Reserved
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version on businesswire.com: https://www.businesswire.com/news/home/20210203005913/en/
Jason Reilley Vice President of Investor Relations
703-317-4681
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