AvalonBay Communities, Inc. (NYSE: AVB) (the “Company”) reported
Earnings per Share – diluted (“EPS”), Funds from Operations
attributable to common stockholders - diluted (“FFO”) per share and
Core FFO per share (as defined in this release) for the three and
six months ended June 30, 2023 and 2022 as detailed below.
Q2 2023
Q2 2022
%
Change
EPS
$
2.59
$
0.99
161.6
%
FFO per share (1)
$
2.67
$
2.41
10.8
%
Core FFO per share (1)
$
2.66
$
2.43
9.5
%
YTD 2023
YTD 2022
%
Change
EPS
$
3.65
$
2.86
27.6
%
FFO per share (1)
$
5.21
$
4.65
12.0
%
Core FFO per share (1)
$
5.23
$
4.69
11.5
%
(1) For additional detail on reconciling
items between net income attributable to common stockholders, FFO
and Core FFO, see Definitions and Reconciliations, table 3.
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, 2023 to its results for the prior year period:
Q2 2023 Results Compared to Q2
2022
Per Share
EPS
FFO
Core FFO
Q2 2022 per share reported results
$
0.99
$
2.41
$
2.43
Same Store Residential NOI (1)
0.16
0.16
0.16
Development and Other Stabilized
Residential NOI
0.05
0.05
0.05
Commercial NOI
0.01
0.01
0.01
Overhead and other
0.03
0.03
0.03
Capital markets and transaction
activity
(0.01
)
(0.01
)
(0.03
)
Unconsolidated investment income and
management fees
0.02
0.02
0.01
Gain on sale of real estate and
depreciation expense
1.34
—
—
Q2 2023 per share reported results
$
2.59
$
2.67
$
2.66
(1) Consists of increases of $0.27 in
revenue and $0.11 in operating expenses.
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, 2023 to its April 2023 outlook:
Q2 2023 Results Compared to
April 2023 Outlook
Per Share
EPS
FFO
Core FFO
Projected per share (1)
$
2.53
$
2.57
$
2.59
Same Store Residential revenue (2)
0.05
0.05
0.05
Development and Other Stabilized
Residential NOI
0.01
0.01
0.01
Capital markets and transaction
activity
0.01
0.01
—
Unconsolidated investment income and
management fees
0.01
0.01
0.01
Income taxes
0.02
0.02
—
Gain on sale of real estate and
depreciation expense
(0.04
)
—
—
Q2 2023 per share reported results
$
2.59
$
2.67
$
2.66
(1) The mid-point of the Company's April
2023 outlook.
(2) Includes $0.03 of favorable
uncollectible lease revenue.
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, 2023 to its results for the prior year period:
YTD 2023 Results Compared to
YTD 2022
Per Share
EPS
FFO
Core FFO
YTD 2022 per share reported results
$
2.86
$
4.65
$
4.69
Same Store Residential NOI (1)
0.45
0.45
0.45
Development and Other Stabilized
Residential NOI
0.11
0.11
0.11
Commercial NOI
0.01
0.01
0.01
Overhead and other
(0.02
)
(0.02
)
(0.01
)
Capital markets and transaction
activity
(0.01
)
(0.03
)
(0.04
)
Unconsolidated investment income and
management fees
0.05
0.05
0.02
Income taxes
(0.01
)
(0.01
)
—
Gain on sale of real estate and
depreciation expense
0.21
—
—
YTD 2023 per share reported results
$
3.65
$
5.21
$
5.23
(1) Consists of increases of $0.65 in
revenue and $0.20 in operating expenses.
Same Store Operating Results for the Three Months Ended June
30, 2023 Compared to the Prior Year Period
Same Store total revenue increased $37,062,000, or 6.2%, to
$636,890,000. Same Store Residential rental revenue increased
$37,080,000, or 6.3%, to $629,883,000, as detailed in the following
table:
Same Store Residential Rental
Revenue Change
Q2 2023 Compared to Q2
2022
Lease rates
6.4
%
Concessions and other discounts
0.5
%
Economic occupancy
(0.4
)%
Other rental revenue
0.9
%
Uncollectible lease revenue (excluding
rent relief) (1)
1.1
%
Rent relief (2)
(2.2
)%
Residential rental revenue
6.3
%
(1) Adjusting to remove the impact of rent
relief, uncollectible lease revenue as a percentage of total
Residential rental revenue decreased to 2.3% in Q2 2023 from 3.6%
in Q2 2022. See Definitions and Reconciliations, table 11 for
further detail of uncollectible lease revenue for the Company’s
Same Store portfolio.
(2) The Company recognized $2,441,000 and
$15,683,000 from government rent relief programs during Q2 2023 and
Q2 2022, respectively.
Same Store Residential operating expenses increased $14,769,000,
or 8.2%, to $195,251,000 and Same Store Residential NOI increased
$22,207,000, or 5.4%, to $435,057,000.
The following table presents percentage changes in Same Store
Residential rental revenue, operating expenses and NOI for the
three months ended June 30, 2023 compared to the three months ended
June 30, 2022:
Q2 2023 Compared to Q2
2022
Same Store Residential
Rental Revenue
(1)
Opex (2)
% of Q2 2023
NOI
NOI
New England
8.7
%
6.8
%
9.5
%
14.2
%
Metro NY/NJ
8.6
%
10.4
%
7.7
%
20.9
%
Mid-Atlantic
6.9
%
5.5
%
7.5
%
14.6
%
Southeast FL
10.8
%
3.7
%
14.8
%
2.7
%
Denver, CO
5.6
%
25.6
%
(1.6
)%
1.1
%
Pacific NW
4.6
%
7.9
%
3.4
%
6.8
%
N. California
5.8
%
5.5
%
5.9
%
17.4
%
S. California
2.3
%
10.5
%
(1.0
)%
21.4
%
Other Expansion Regions
9.6
%
16.4
%
6.9
%
0.9
%
Total
6.3
%
8.2
%
5.4
%
100.0
%
(1) See full release for additional
detail.
(2) See full release for discussion of
variances.
Same Store Operating Results for the Six Months Ended June
30, 2023 Compared to the Prior Year Period
Same Store total revenue increased $90,722,000, or 7.7%, to
$1,261,641,000. Same Store Residential rental revenue increased
$90,737,000, or 7.8%, to $1,247,386,000, as detailed in the
following table:
Same Store Residential Rental
Revenue Change
YTD 2023 Compared to YTD
2022
Lease rates
7.1
%
Concessions and other discounts
0.9
%
Economic occupancy
(0.3
)%
Other rental revenue
0.9
%
Uncollectible lease revenue (excluding
rent relief) (1)
1.3
%
Rent relief (2)
(2.1
)%
Residential rental revenue
7.8
%
(1) Adjusting to remove the impact of rent
relief, uncollectible lease revenue as a percentage of total
Residential rental revenue decreased to 2.6% in YTD 2023 from 4.1%
in YTD 2022. See Definitions and Reconciliations, table 11 for
further detail of uncollectible lease revenue for the Company’s
Same Store portfolio.
(2) The Company recognized $5,474,000 and
$29,851,000 from government rent relief programs during YTD 2023
and YTD 2022, respectively.
Same Store Residential operating expenses increased $27,547,000,
or 7.7%, to $386,292,000 and Same Store Residential NOI increased
$63,200,000, or 7.9%, to $861,996,000.
The following table presents percentage changes in Same Store
Residential rental revenue, operating expenses and NOI for the six
months ended June 30, 2023 compared to the six months ended June
30, 2022:
YTD 2023 Compared to YTD
2022
Same Store Residential
Rental Revenue
(1)
Opex (2)
% of YTD 2023
NOI
NOI
New England
10.0
%
6.2
%
12.1
%
14.0
%
Metro NY/NJ
10.1
%
9.7
%
10.2
%
21.0
%
Mid-Atlantic
7.5
%
3.9
%
9.1
%
14.7
%
Southeast FL
13.9
%
5.2
%
19.1
%
2.8
%
Denver, CO
7.0
%
22.8
%
1.4
%
1.1
%
Pacific NW
7.5
%
7.8
%
7.3
%
6.9
%
N. California
7.2
%
6.3
%
7.5
%
17.4
%
S. California
4.3
%
9.9
%
2.0
%
21.2
%
Other Expansion Regions
11.6
%
14.0
%
10.9
%
0.9
%
Total
7.8
%
7.7
%
7.9
%
100.0
%
(1) See full release for additional
detail.
(2) See full release for discussion of
variances.
Development Activity
Consolidated Development
Communities
During the three months ended June 30, 2023, the Company
completed the development of two communities:
- Avalon Harrison, located in Harrison, NY; and
- Avalon Brighton, located in Boston, MA.
These communities contain an aggregate of 323 apartment homes
and 27,000 square feet of commercial space and were developed for
an aggregate Total Capital Cost of $184,000,000.
During the three months ended June 30, 2023, the Company started
the development of Avalon Hunt Valley West, located in Hunt Valley,
MD. Avalon Hunt Valley West is expected to contain 322 apartment
homes when completed and be developed for an estimated Total
Capital Cost of $109,000,000.
At June 30, 2023, the Company had 17 consolidated Development
communities under construction that are expected to contain 5,761
apartment homes and 29,000 square feet of commercial space.
Estimated Total Capital Cost at completion for these Development
communities is $2,293,000,000.
Disposition Activity
Consolidated Apartment
Communities
During the three months ended June 30, 2023, the Company sold
two wholly-owned communities:
- eaves Daly City, located in Daly City, CA; and
- Avalon at Newton Highlands, located in Newton, MA.
In aggregate, these communities contain 489 apartment homes and
were sold for $237,000,000 and a weighted average Initial Market
Cap Rate of 4.5%, resulting in a gain in accordance with GAAP of
$187,341,000 and an Economic Gain of $123,278,000.
In July 2023, the Company sold Avalon Columbia Pike, located in
Arlington, VA. Avalon Columbia Pike contains 269 apartments homes
and 27,000 square feet of commercial space and was sold for
$105,000,000.
Structured Investment Program (the "SIP") Activity
In July 2023, the Company entered into an additional mezzanine
loan commitment, agreeing to fund up to $20,900,000 of a
multifamily development project in North Carolina. As of the date
of this release, the Company had commitments to fund four mezzanine
loans for the development of multifamily projects in the Company's
markets, up to $113,275,000 in the aggregate. At the date of this
release, the commitments had a weighted average rate of return of
10.4% and mature at various dates on or before July 2027. As of
June 30, 2023, the Company had funded $55,869,000 of these
commitments.
Liquidity and Capital Markets
As of June 30, 2023, the Company did not have any borrowings
outstanding under its $2,250,000,000 unsecured revolving credit
facility (the "Credit Facility") or its $500,000,000 unsecured
commercial paper note program. The commercial paper program is
backstopped by the Company's commitment to maintain available
borrowing capacity under its Credit Facility in an amount equal to
actual borrowings under the program.
In addition, at June 30, 2023, the Company had $769,622,000 in
unrestricted cash and cash equivalents and $177,376,000 in cash in
escrow, which is composed of principal reserve funds for secured
borrowing arrangements as well as proceeds from a disposition held
in escrow for subsequent tax deferred exchange activity.
The Company’s annualized Net Debt-to-Core EBITDAre (as defined
in this release) for the second quarter of 2023 was 4.1 times and
Unencumbered NOI (as defined in this release) for the six months
ended June 30, 2023 was 95%.
During the six months ended June 30, 2023, the Company repaid
$250,000,000 principal amount of its 2.85% unsecured notes at its
maturity.
During the three months ended June 30, 2023, the Company settled
the outstanding equity forward contracts entered into in April 2022
(the "Equity Forward"), issuing 2,000,000 shares of common stock
for $491,912,000, or $245.96 per share, net of offering fees and
discounts.
Stock Repurchase Program
Under the Company's stock repurchase program, during the six
months ended June 30, 2023, the Company repurchased 11,800 shares
of its common stock at an average price of $161.96 per share.
Legal Update
In 2022 and early 2023, the Company was named as a defendant in
cases alleging antitrust violations by RealPage, Inc. and owners
and/or operators of multifamily housing which utilize revenue
management systems provided by RealPage, Inc. The complaints allege
a conspiracy to artificially inflate rental rates for multifamily
residential real estate above competitive levels. The Company
recently engaged with the plaintiffs’ counsel to explain why it
believes these cases are without merit as they pertain to the
Company. Following these discussions, the plaintiffs filed a notice
of voluntary dismissal in July 2023, which resulted in the Company
being dismissed without prejudice from these cases.
Third Quarter and Full Year 2023 Financial Outlook
For its third quarter and full year 2023 financial outlook, the
Company expects the following:
Projected EPS, Projected FFO and
Projected Core FFO Outlook (1)
Q3 2023
Full Year 2023
Low
High
Low
High
Projected EPS
$
1.22
—
$
1.32
$
6.83
—
$
7.03
Projected FFO per share
$
2.50
—
$
2.60
$
10.37
—
$
10.57
Projected Core FFO per share
$
2.55
—
$
2.65
$
10.46
—
$
10.66
(1) See Definitions and Reconciliations,
table 9, for reconciliations of Projected FFO per share and
Projected Core FFO per share to Projected EPS.
Full Year Financial
Outlook
Full Year 2023
vs. Full Year 2022
Low
High
Same Store:
Residential revenue change
5.5%
—
6.5%
Residential Opex change
6.0%
—
7.0%
Residential NOI change
5.25%
—
6.75%
The following table compares the Company’s actual results for
EPS, FFO per share and Core FFO per share for the second quarter
2023 to the mid-point of its third quarter 2023 financial
outlook:
Q2 2023 Results Compared to Q3
2023 Outlook
Per Share
EPS
FFO
Core FFO
Q2 2023 per share reported results
$
2.59
$
2.67
$
2.66
Same Store Residential revenue
0.03
0.03
0.03
Same Store Residential Opex
(0.07
)
(0.07
)
(0.07
)
Development and Other Stabilized
Residential NOI
0.01
0.01
0.01
Overhead and other
(0.04
)
(0.04
)
(0.01
)
Capital markets and transaction
activity
(0.03
)
(0.03
)
(0.02
)
Unconsolidated investment income and
management fees
(0.02
)
(0.02
)
—
Gain on sale of real estate and
depreciation expense
(1.20
)
—
—
Projected per share - Q3 2023 outlook
(1)
$
1.27
$
2.55
$
2.60
(1) Represents the mid-point of the
Company's outlook.
The following table compares the mid-point of the Company’s July
2023 outlook for EPS, FFO per share and Core FFO per share for the
full year 2023 to its April 2023 financial outlook:
July 2023 Full Year Outlook
Compared
to April 2023 Full Year
Outlook
Per Share
EPS
FFO
Core FFO
Projected per share - April 2023 outlook
(1)
$
5.89
$
10.30
$
10.41
Same Store Residential revenue
0.17
0.17
0.17
Same Store Residential Opex
(0.03
)
(0.03
)
(0.03
)
Development and Other Stabilized
Residential NOI
0.02
0.02
0.02
Overhead and other
(0.07
)
(0.07
)
(0.03
)
Capital markets and transaction
activity
0.01
0.01
0.01
Unconsolidated investment income and
management fees
0.03
0.03
0.01
Income tax expense
0.04
0.04
—
Gain on sale of real estate and
depreciation expense
0.87
—
—
Projected per share - July 2023 outlook
(1)
$
6.93
$
10.47
$
10.56
(1) Represents the mid-point of the
Company's outlook.
Other Matters
The Company will hold a conference call on August 1, 2023 at
1:00 PM ET to review and answer questions about this release, its
second quarter 2023 results, the Attachments (described below) and
related matters. To participate on the call, dial 877-407-9716.
To hear a replay of the call, which will be available from
August 1, 2023 at 4:00 PM ET to September 1, 2023, dial
844-512-2921 and use replay passcode: 13734360. A webcast of the
conference call will also be available at
https://investors.avalonbay.com, and an online 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 https://investors.avalonbay.com. To
receive future press releases via e-mail, please submit a request
through https://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 https://investors.avalonbay.com subsequent to this
release and before the market opens on August 1, 2023.
About AvalonBay Communities, Inc.
As of June 30, 2023, the Company owned or held a direct or
indirect ownership interest in 294 apartment communities containing
88,659 apartment homes in 12 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 regions of Raleigh-Durham and Charlotte, North
Carolina, Southeast Florida, Dallas and Austin, Texas, and Denver,
Colorado. More information may be found on the Company’s website at
https://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,” "may," "shall," "will," "pursue"
and similar expressions that predict or indicate future events and
trends and that do not report 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, performance or
achievements to differ materially from the anticipated future
results, performance or achievements expressed or implied by the
forward-looking statements. Risks and uncertainties that might
cause such differences include the following: we may abandon
development or redevelopment opportunities for which we have
already incurred costs; adverse capital and credit market
conditions, including rising interest rates, 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 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, and general price
inflation, 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 joint ventures and our
ability to successfully dispose of certain assets may not be
realized; investments made under the SIP in either mezzanine debt
or preferred equity of third-party multifamily development may not
be repaid as expected; our assumptions and expectations in our
financial outlook may prove to be too optimistic; litigation costs
and consequences may exceed our expectations; and risks related to
an outbreak of disease or other public health event may affect the
multifamily industry and general economy, including from measures
taken by businesses and the government and the preferences of
consumers and businesses for living and working arrangements both
during and after such an event. 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, 2022 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 2023 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 13, Definitions and Reconciliations of
Non-GAAP Financial Measures and Other Terms. Attachment 13 is
included in the full earnings release available at the Company’s
website at https://investors.avalonbay.com. This wire distribution
includes only the following definitions and reconciliations.
Average Monthly Rental Revenue per
Occupied Home is calculated by the Company as Residential
rental revenue in accordance with GAAP, divided by the weighted
average number of occupied apartment homes.
Commercial represents results
attributable to the non-apartment components of the Company's
mixed-use communities and other non-residential operations.
Development is composed of
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.
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 computed in accordance with GAAP before interest
expense, income taxes, depreciation and amortization. EBITDAre is
calculated by the Company in accordance with the definition adopted
by the Board of Governors of the National Association of Real
Estate Investment Trusts (“Nareit”), as EBITDA plus or minus losses
and gains on the disposition of depreciated property, plus
impairment write-downs of depreciated property, with adjustments to
reflect the Company's share of EBITDAre of unconsolidated entities.
Core EBITDAre is the Company’s EBITDAre as adjusted for non-core
items outlined in the table below. By further adjusting for items
that are not considered part of the Company’s core business
operations, Core EBITDAre can help one compare the core operating
and financial performance of the Company between periods. A
reconciliation of EBITDA, EBITDAre and Core EBITDAre to net income
is as follows (dollars in thousands):
TABLE 1
Q2
2023
Net income
$
367,807
Interest expense and loss on
extinguishment of debt
59,883
Income tax benefit
(217
)
Depreciation expense
200,546
EBITDA
$
628,019
Gain on sale of communities
(187,322
)
Unconsolidated entity EBITDAre adjustments
(1)
2,809
EBITDAre
$
443,506
Unconsolidated entity gains, net
(1,795
)
Joint venture promote
(1,072
)
Structured Investment Program loan
reserve
(105
)
Advocacy contributions
200
Hedge accounting activity
(37
)
Executive transition compensation
costs
297
Severance related costs
327
Expensed transaction, development and
other pursuit costs, net of recoveries
797
Other real estate activity
(341
)
Legal settlements
148
Core EBITDAre
$
441,925
(1) Includes joint venture interest,
taxes, depreciation, gain on dispositions of depreciated real
estate and impairment losses, if applicable, included in net
income.
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 communities disposed of during the three and
six months ended June 30, 2023 is as follows (dollars in
thousands):
TABLE 2
Q2 2023
YTD 2023
GAAP Gain
$
187,341
$
187,341
Accumulated Depreciation and Other
(64,063
)
(64,063
)
Economic Gain
$
123,278
$
123,278
Economic Occupancy is defined as
total possible Residential revenue less vacancy loss as a
percentage of total possible Residential revenue. Total possible
Residential revenue (also known as “gross potential”) is determined
by valuing occupied units at contract rates and vacant units at
Market Rents. Vacancy loss is determined by valuing vacant units at
current Market Rents. By measuring vacant apartments at their
Market Rents, Economic Occupancy takes into account the fact that
apartment homes of different sizes and locations within a community
have different economic impacts on a community’s gross revenue.
FFO and Core FFO are generally
considered by management to be appropriate 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. FFO
can help one compare the operating and financial performance of a
real estate company between periods or as compared to different
companies because adjustments such as (i) gains or losses on sales
of previously depreciated property or (ii) real estate depreciation
may impact comparability between companies as the amount and timing
of these or similar items can vary among owners of identical assets
in similar condition based on historical cost accounting and useful
life estimates. 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 with the comparison of core
operating performance of the Company between periods. A
reconciliation of Net income attributable to common stockholders to
FFO and to Core FFO is as follows (dollars in thousands):
TABLE 3
Q2
Q2
YTD
YTD
2023
2022
2023
2022
Net income attributable to common
stockholders
$
367,923
$
138,691
$
514,825
$
400,735
Depreciation - real estate assets,
including joint venture adjustments
199,197
198,493
402,477
399,145
Distributions to noncontrolling
interests
13
12
25
24
Gain on sale of previously depreciated
real estate
(187,322
)
(404
)
(187,309
)
(149,204
)
Casualty loss on real estate
—
—
5,051
—
FFO attributable to common
stockholders
379,811
336,792
735,069
650,700
Adjusting items:
Unconsolidated entity gains, net (1)
(1,795
)
(2,040
)
(4,851
)
(2,295
)
Joint venture promote (2)
(1,072
)
—
(1,072
)
—
Structured Investment Program loan reserve
(3)
(105
)
1,608
(124
)
1,608
Hedge accounting activity
(37
)
297
191
(432
)
Advocacy contributions
200
384
200
534
Executive transition compensation
costs
297
407
644
809
Severance related costs
327
24
1,500
65
Expensed transaction, development and
other pursuit costs, net of recoveries
797
1,839
3,248
1,998
Other real estate activity
(341
)
28
(470
)
(245
)
For-sale condominium imputed carry cost
(4)
169
716
424
1,635
Legal settlements
148
129
50
259
Income tax (benefit) expense (5)
(217
)
(159
)
3,343
2,312
Core FFO attributable to common
stockholders
$
378,182
$
340,025
$
738,152
$
656,948
Average shares outstanding - diluted
142,124,117
139,934,478
141,073,964
139,955,280
Earnings per share - diluted
$
2.59
$
0.99
$
3.65
$
2.86
FFO per common share - diluted
$
2.67
$
2.41
$
5.21
$
4.65
Core FFO per common share - diluted
$
2.66
$
2.43
$
5.23
$
4.69
(1) Amounts consist primarily of net
unrealized gains on technology investments.
(2) Amount for 2023 is for the Company's
recognition of its promoted interest in the U.S. Fund.
(3) Amounts are the expected credit losses
associated with the Company's lending commitments under its SIP.
The timing and amount of any actual losses that will be incurred,
if any, is to be determined.
(4) 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.
(5) Amounts are primarily for the
recognition of taxes associated with The Park Loggia.
Interest Coverage is calculated by
the Company as Core EBITDAre divided by interest expense. 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, 2023 is as follows (dollars in thousands):
TABLE 4
Core EBITDAre (1)
$
441,925
Interest expense (2)
$
59,883
Interest Coverage
7.4 times
(1) For additional detail, see Definitions
and Reconciliations, table 1.
(2) Excludes the impact of hedge
accounting activity.
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 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 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 Market
Cap Rate is weighted based on the gross sales price of each
community.
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. 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 Credit Facility and commercial paper
program) that is consolidated for financial reporting purposes,
less consolidated cash and cash in escrow, divided by annualized
second quarter 2023 Core EBITDAre. A calculation of Net
Debt-to-Core EBITDAre is as follows (dollars in thousands):
TABLE 5
Total debt principal (1)
$
8,120,427
Cash and cash in escrow
(946,998
)
Net debt
$
7,173,429
Core EBITDAre (2)
$
441,925
Core EBITDAre, annualized
$
1,767,700
Net Debt-to-Core EBITDAre
4.1 times
(1) Balance at June 30, 2023 excludes
$44,307 of debt discount and deferred financing costs as reflected
in unsecured notes, net, and $13,421 of debt discount and deferred
financing costs as reflected in notes payable, net, on the
Condensed Consolidated Balance Sheets.
(2) For additional detail, see Definitions
and Reconciliations, table 1.
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 on extinguishment of debt,
net, general and administrative expense, income from unconsolidated
investments, depreciation expense, income tax (benefit) expense,
casualty loss, gain on sale of communities, other real estate
activity and net operating income from real estate assets sold or
held for sale. The Company considers NOI to be an important and
appropriate supplemental performance measure to Net Income of
operating performance of a community or communities because it
helps both investors and management to understand the core
operations of a community or communities prior to the allocation of
any corporate-level property management overhead or
financing-related costs. NOI reflects the operating performance of
a community, and allows for an easier comparison of the operating
performance of individual assets or groups of assets. In addition,
because prospective buyers of real estate have different financing
and overhead structures, with varying marginal impact to overhead
as a result of acquiring real estate, NOI is considered by many in
the real estate industry to be a useful measure for determining the
value of a real estate asset or groups of assets.
Residential NOI represents results attributable to the Company's
apartment rental operations, including parking and other ancillary
Residential revenue. A reconciliation of Residential NOI to Net
Income, as well as a breakdown of Residential NOI by operating
segment, is as follows (dollars in thousands):
TABLE 6
Q2
Q2
Q1
Q4
YTD
YTD
2023
2022
2023
2022
2023
2022
Net income
$
367,807
$
138,566
$
146,775
$
241,164
$
514,582
$
400,642
Property management and other indirect
operating expenses, net of corporate income
28,972
30,632
30,784
26,081
59,756
58,745
Expensed transaction, development and
other pursuit costs, net of recoveries
1,261
2,364
2,992
6,700
4,253
3,351
Interest expense, net
51,585
58,797
56,821
57,461
108,406
115,323
General and administrative expense
17,676
21,291
20,400
20,741
38,076
38,712
Income from unconsolidated investments
(4,970
)
(2,480
)
(4,845
)
(6,820
)
(9,815
)
(2,797
)
Depreciation expense
200,546
199,302
204,743
207,232
405,289
401,088
Income tax (benefit) expense
(217
)
(159
)
3,560
6,683
3,343
2,312
Casualty loss
—
—
5,051
—
5,051
—
(Gain) loss on sale of communities
(187,322
)
(404
)
13
(88,065
)
(187,309
)
(149,204
)
Other real estate activity
(341
)
28
(129
)
(4,563
)
(470
)
(245
)
NOI from real estate assets sold or held
for sale
(3,977
)
(12,252
)
(4,804
)
(5,443
)
(8,781
)
(25,521
)
NOI
471,020
435,685
461,361
461,171
932,381
842,406
Commercial NOI
(8,529
)
(7,545
)
(8,565
)
(9,158
)
(17,094
)
(15,693
)
Residential NOI
$
462,491
$
428,140
$
452,796
$
452,013
$
915,287
$
826,713
Residential NOI
Same Store:
New England
$
61,567
$
56,207
$
59,241
$
59,677
$
120,808
$
107,791
Metro NY/NJ
90,765
84,314
90,656
92,489
181,421
164,578
Mid-Atlantic
63,437
59,032
62,950
62,304
126,387
115,875
Southeast FL
11,984
10,438
12,172
11,359
24,156
20,288
Denver, CO
4,821
4,900
4,945
5,121
9,766
9,627
Pacific NW
29,657
28,694
29,411
28,929
59,068
55,045
N. California
75,767
71,526
74,123
73,386
149,890
139,389
S. California
93,195
94,124
89,507
89,178
182,702
179,172
Other Expansion Regions
3,864
3,615
3,934
3,853
7,798
7,031
Total Same Store
435,057
412,850
426,939
426,296
861,996
798,796
Other Stabilized
19,701
11,618
19,765
20,237
39,466
20,488
Development/Redevelopment
7,733
3,672
6,092
5,480
13,825
7,429
Residential NOI
$
462,491
$
428,140
$
452,796
$
452,013
$
915,287
$
826,713
NOI as reported by the Company does not include the operating
results from assets sold or classified as held for sale. A
reconciliation of NOI from communities sold or classified as held
for sale is as follows (dollars in thousands):
TABLE 7
Q2
Q2
Q1
Q4
YTD
YTD
2023
2022
2023
2022
2023
2022
Revenue from real estate assets sold or
held for sale
$
5,989
$
18,203
$
6,660
$
7,804
$
12,649
$
39,023
Operating expenses from real estate assets
sold or held for sale
(2,012
)
(5,951
)
(1,856
)
(2,361
)
(3,868
)
(13,502
)
NOI from real estate assets sold or held
for sale
$
3,977
$
12,252
$
4,804
$
5,443
$
8,781
$
25,521
Commercial NOI is composed of the following components (in
thousands):
TABLE 8
Q2
Q2
Q1
Q4
YTD
YTD
2023
2022
2023
2022
2023
2022
Commercial Revenue
$
10,175
$
9,070
$
10,244
$
10,769
$
20,419
$
18,879
Commercial Operating Expenses
(1,646
)
(1,525
)
(1,679
)
(1,611
)
(3,325
)
(3,186
)
Commercial NOI
$
8,529
$
7,545
$
8,565
$
9,158
$
17,094
$
15,693
Other Stabilized is composed of
completed consolidated communities that the Company owns, which
have Stabilized Operations as of January 1, 2023, or which were
acquired subsequent to January 1, 2022. Other Stabilized 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 third quarter and full
year 2023 to the ranges provided for projected EPS (diluted) and
corresponding reconciliation of the ranges for Projected FFO per
share to the ranges for Projected Core FFO per share are as
follows:
TABLE 9
Low Range
High Range
Projected EPS (diluted) - Q3 2023
$
1.22
$
1.32
Depreciation (real estate related)
1.43
1.43
Gain on sale of communities
(0.15
)
(0.15
)
Projected FFO per share (diluted) - Q3
2023
2.50
2.60
Expensed transaction, development and
other pursuit costs, net of recoveries
0.04
0.04
Structured Investment Program loan
reserve
0.01
0.01
Projected Core FFO per share (diluted) -
Q3 2023
$
2.55
$
2.65
Projected EPS (diluted) - Full Year
2023
$
6.83
$
7.03
Depreciation (real estate related)
5.71
5.71
Gain on sale of communities
(2.21
)
(2.21
)
Casualty loss
0.04
0.04
Projected FFO per share (diluted) - Full
Year 2023
10.37
10.57
Joint venture promote and unconsolidated
entity gains, net
(0.04
)
(0.04
)
Structured Investment Program loan
reserve
0.01
0.01
Executive transition compensation
costs
0.01
0.01
Severance related costs
0.01
0.01
Expensed transaction, development and
other pursuit costs, net of recoveries
0.07
0.07
Income tax expense and other real estate
activity
0.02
0.02
Other
0.01
0.01
Projected Core FFO per share (diluted) -
Full Year 2023
$
10.46
$
10.66
Projected NOI, as used within this
release for certain Development communities and in calculating the
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 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 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 is composed of
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
includes one community containing 714 apartment homes that is
currently under active redevelopment as of June 30, 2023.
Residential represents results
attributable to the Company's apartment rental operations,
including parking and other ancillary Residential revenue.
Residential Rental Revenue with
Concessions on a Cash Basis is considered by the Company to
be a supplemental measure to Residential rental revenue in
conformity with GAAP to help investors evaluate the impact of both
current and historical concessions on GAAP-based Residential rental
revenue and to more readily enable comparisons to revenue as
reported by other companies. In addition, Residential Rental
Revenue with Concessions on a Cash Basis allows an investor to
understand the historical trend in cash concessions.
A reconciliation of Same Store Residential rental revenue in
conformity with GAAP to Residential Rental Revenue with Concessions
on a Cash Basis is as follows (dollars in thousands):
TABLE 10
Q2
Q2
Q1
YTD
YTD
2023
2022
2023
2023
2022
Residential rental revenue (GAAP
basis)
$
629,883
$
592,803
$
617,503
$
1,247,386
$
1,156,649
Residential concessions amortized
3,268
6,094
3,109
6,377
15,620
Residential concessions granted
(2,767
)
(2,006
)
(3,581
)
(6,348
)
(4,563
)
Residential Rental Revenue with
Concessions on a Cash Basis
$
630,384
$
596,891
$
617,031
$
1,247,415
$
1,167,706
Q2 2023 vs. Q2
2022
Q2 2023 vs. Q1
2023
YTD 2023 vs. YTD
2022
% change -- GAAP revenue
6.3
%
2.0
%
7.8
%
% change -- cash revenue
5.6
%
2.2
%
6.8
%
Same Store is composed of
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 2023 operating results, Same Store is composed of
consolidated communities that have Stabilized Operations as of
January 1, 2022, 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.
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 and a
contingency estimate, 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 period 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.
Uncollectible lease revenue and government
rent relief
The following table provides uncollectible Residential lease
revenue as a percentage of total Residential rental revenue in the
aggregate and excluding amounts recognized from government rent
relief programs in each respective period. Government rent relief
reduces the amount of uncollectible Residential lease revenue. The
Company expects the amount of rent relief recognized to continue to
decline in 2023 absent additional funding from the Federal
government.
TABLE 11
Same Store Uncollectible
Residential Lease Revenue
Q2
Q2
Q1
Q4
2023
2022
2023
2022
Total
Excluding Rent Relief
Total
Excluding Rent Relief
Total
Excluding Rent Relief
Total
Excluding Rent Relief
New England
0.6
%
1.1
%
0.4
%
2.0
%
0.9
%
1.4
%
1.2
%
1.7
%
Metro NY/NJ
2.3
%
3.1
%
2.7
%
3.6
%
2.4
%
3.5
%
2.6
%
3.6
%
Mid-Atlantic
1.9
%
2.3
%
2.0
%
2.6
%
2.6
%
2.7
%
2.3
%
2.7
%
Southeast FL
2.6
%
3.1
%
2.0
%
3.5
%
2.3
%
3.0
%
2.6
%
3.3
%
Denver, CO
1.0
%
1.0
%
0.6
%
1.5
%
1.4
%
1.7
%
0.6
%
1.6
%
Pacific NW
0.8
%
1.0
%
0.1
%
0.6
%
0.9
%
1.2
%
0.7
%
1.2
%
N. California
1.2
%
1.3
%
0.7
%
2.8
%
1.7
%
1.9
%
1.8
%
2.2
%
S. California
3.4
%
3.5
%
(0.6
)%
6.8
%
4.9
%
5.2
%
5.6
%
5.9
%
Other Expansion Regions
0.3
%
0.3
%
0.6
%
0.6
%
0.6
%
0.6
%
0.8
%
0.8
%
Total Same Store
1.9
%
2.3
%
1.0
%
3.6
%
2.5
%
3.0
%
2.7
%
3.3
%
Unconsolidated Development is
composed of 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 June 30,
2023 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, 2023 is as
follows (dollars in thousands):
TABLE 12
YTD 2023
NOI
Residential NOI:
Same Store
$
861,996
Other Stabilized
39,466
Development/Redevelopment
13,825
Total Residential NOI
915,287
Commercial NOI
17,094
NOI from real estate assets sold or held
for sale
8,781
Total NOI generated by real estate
assets
941,162
Less NOI on encumbered assets
(44,805
)
NOI on unencumbered assets
$
896,357
Unencumbered NOI
95
%
Copyright © 2023 AvalonBay Communities, Inc.
All Rights Reserved
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230728424925/en/
Jason Reilley, Vice President of Investor Relations,
703-317-4681
Avalonbay Communities (NYSE:AVB)
Gráfico Histórico do Ativo
De Abr 2024 até Mai 2024
Avalonbay Communities (NYSE:AVB)
Gráfico Histórico do Ativo
De Mai 2023 até Mai 2024