AvalonBay Communities, Inc. (NYSE: AVB) (the “Company”) reported
today that Net Income Attributable to Common Stockholders for the
three months ended March 31, 2017 was $235,875,000. This resulted
in a decrease in Earnings per Share – diluted (“EPS”) of 0.6% to
$1.72 for the three months ended March 31, 2017, from $1.73 for the
prior year period.
Funds from Operations attributable to common stockholders -
diluted (“FFO”) per share for the three months ended March 31, 2017
decreased 1.4% to $2.04 from $2.07 for the prior year period.
Core FFO per share (as defined in this release) for the three
months ended March 31, 2017 increased 6.1% to $2.09 from $1.97 for
the prior year period.
The changes in the Company's EPS, FFO per share and Core FFO per
share reflect an increase in Net Operating Income (“NOI”) from
existing, acquired and newly developed operating communities for
the three months ended March 31, 2017 over the prior year period,
partially offset by an increase in interest expense. The decreases
in EPS and FFO per share were also due to a casualty and impairment
loss in the current year period as compared to a gain in the prior
year period. The change in EPS was also due to an increase in
depreciation expense, partially offset by an increase in
wholly-owned real estate sales and related gains.
The following table compares the Company’s actual results for
EPS, FFO per share and Core FFO per share for the first quarter of
2017 to its February 2017 outlook:
First Quarter 2017 Results Comparison to February
2017 Outlook Per Share EPS
FFO Core FFO Projected per share
- February 2017 outlook (1) $ 1.78 $ 2.12 $ 2.09 Established
Community revenue 0.01 0.01 0.01 General and administrative expense
(0.01 ) (0.01 ) (0.01 ) Casualty and impairment loss (0.08 ) (0.08
) — Gain on sale of real estate 0.02 —
— Q1 2017 per share reported results $ 1.72 $
2.04 $ 2.09 (1) The mid-point of the
Company's February 2017 outlook.
Operating Results for the Three Months Ended March 31,
2017 Compared to the Prior Year Period
For the Company, total revenue increased by $13,828,000, or
2.7%, to $522,326,000. This increase is primarily due to
growth in revenue from stabilized operating communities and
development communities.
For Established Communities, Average Rental Rates increased 3.1%
and Economic Occupancy increased 0.1%, resulting in an increase in
rental revenue of 3.2%. If the Company were to include current and
previously completed redevelopment communities as part of its
Established Communities portfolio, the increase in Established
Communities' rental revenue would have been 3.4%. Total revenue for
Established Communities increased $11,936,000, or 3.2%, to
$388,908,000. Operating expenses for Established Communities
increased $1,620,000, or 1.5%, to $112,802,000. NOI for Established
Communities increased $10,316,000, or 3.9%, to $276,106,000.
The following table reflects the percentage changes in rental
revenue, operating expenses and NOI for Established Communities for
the three months ended March 31, 2017 compared to the three months
ended March 31, 2016:
Q1 2017 Compared to Q1 2016 Rental Revenue
Avg Rent Ec % of
Rates
Occ
Opex (1)
NOI
NOI (2)
New England 2.5 % 0.5 % 2.5 % 3.3 % 13.9 % Metro NY/NJ 2.8 % 0.2 %
1.1 % 3.8 % 23.8 % Mid-Atlantic 2.3 % 0.5 % 0.8 % 3.7 % 15.7 %
Pacific NW 6.1 % 0.0 % 8.7 % 5.2 % 5.4 % No. California 2.2 % 0.1 %
3.2 % 2.0 % 20.5 % So. California 4.5 % (0.5 )% (1.7 )% 6.2 % 20.7
% Total 3.1 % 0.1 % 1.5 % 3.9 % 100.0 % (1) See full release
for discussion of variances. (2) Represents each region's %
of total NOI for Q1 2017, including amounts related to communities
that have been sold or that are classified as held for sale.
Development Activity
During the three months ended March 31, 2017, the Company
completed the development of the following communities, one of
which is dual-branded:
- Avalon Willoughby Square/AVA DoBro,
located in Brooklyn, NY;
- Avalon Huntington Beach, located in
Huntington Beach, CA; and
- Avalon Laurel, located in Laurel,
MD.
These communities contain an aggregate of 1,548 apartment homes
and were constructed for an aggregate Total Capital Cost of
$648,800,000.
At March 31, 2017, the Company had 24 communities under
construction, which in the aggregate are expected to contain 7,581
apartment homes and be completed for an estimated Total Capital
Cost of $3,348,300,000, including the Company's share of joint
ventures.
During the three months ended March 31, 2017, the Company added
four development rights which, if developed as expected, will
contain 1,191 apartment homes and will be developed for an
estimated Total Capital Cost of $387,000,000.
The projected Total Capital Cost of development rights increased
to $3.4 billion at March 31, 2017 from $3.0 billion at
December 31, 2016.
Disposition Activity
Consolidated Apartment Communities
During the three months ended March 31, 2017, the Company sold
Avalon Pines, a wholly-owned operating community, and the adjacent
golf course, located in Coram, NY. Avalon Pines, which contains 450
apartment homes, and the golf course were sold for $140,000,000,
resulting in a gain in accordance with GAAP of $87,949,000 and an
Economic Gain of $58,459,000. Avalon Pines generated an Unleveraged
IRR of 12.5% over a weighted average investment period of 11.2
years.
Unconsolidated Real Estate Investments
During the three months ended March 31, 2017, AvalonBay Value
Added Fund II, L.P. ("Fund II"), a private discretionary real
estate investment vehicle in which the Company holds an equity
interest of approximately 31.3%, sold one community containing 684
apartment homes for a sales price of $117,000,000. The Company's
share of the gain in accordance with GAAP was $8,697,000. In
addition, the Company recognized $6,765,000 in joint venture income
associated with its promoted interest in Fund II. In conjunction
with the disposition, Fund II repaid $63,200,000 of related secured
indebtedness at par in advance of the scheduled maturity date.
Liquidity and Capital Markets
At March 31, 2017, the Company did not have any borrowings
outstanding under its $1,500,000,000 unsecured credit facility, and
had $368,720,000 in unrestricted cash and cash in escrow.
The Company’s annualized Net Debt-to-Core EBITDA for the first
quarter of 2017 was 5.0 times.
During the three months ended March 31, 2017, the Company
entered into a $250,000,000 variable rate unsecured term loan, of
which $100,000,000 matures in February 2022 with stated pricing of
LIBOR plus 0.90%, and $150,000,000 matures in February 2024 with
stated pricing of LIBOR plus 1.50%. At March 31, 2017, the Company
had not drawn any of the amounts available under the term loan. The
Company expects to draw the $250,000,000 available by the end of
April 2017.
During the three months ended March 31, 2017, the Company repaid
a $17,300,000 variable rate secured mortgage note at its scheduled
maturity date.
Under the current continuous equity program established in
December 2015, the Company sold 306,177 shares of common stock at
an average sales price of $186.44 per share, for net proceeds of
$56,228,000, during the three months ended March 31, 2017.
Casualty and Impairment Loss
In February 2017, a fire occurred at the Company's Avalon
Maplewood development community, located in Maplewood, NJ
("Maplewood"), which was under construction and not yet occupied.
During the three months ended March 31, 2017, the Company
recognized a casualty loss that was partially offset by expected
property damage insurance proceeds, a portion of which were
received, resulting in a net casualty loss of $2,338,000.
In addition, during the three months ended March 31, 2017, the
Company recognized an impairment charge of $9,350,000 relating to a
land parcel which the Company had acquired in 2004 for development
and no longer intends to develop.
Second Quarter 2017 Financial Outlook
For its second quarter 2017 financial outlook, the Company
expects the following:
Projected EPS, Projected FFO and Projected Core FFO
Outlook (1) Q2 2017
Low
High
Projected EPS $1.50 - $1.56 Projected FFO per share $2.18 -
$2.24 Projected Core FFO per share $2.07 - $2.13 (1) See
Definitions and Reconciliations of this release for reconciliations
of Projected FFO per share and Projected Core FFO per share to
Projected EPS.
In its full year 2017 outlook for EPS published in its earnings
release dated February 1, 2017, the Company contemplated gains on
sale from the disposition of operating communities of $2.02 per
share for the year. Due to a change in the composition of the
Company’s disposition plan, the Company now contemplates gains on
sale from the disposition of operating communities of $1.80 per
share. Gains on sale of operating communities impact earnings
per share but do not impact FFO/share or Core FFO/share. The
impairment charge of $0.08 per share in the first quarter of 2017
as reported in this release was not contemplated in the Company's
February 2017 outlook and will impact EPS and FFO/share but not
Core FFO/share for 2017.
Second Quarter Conference Schedule
The Company is scheduled to participate in the NAREIT
Institutional Investor Forum in New York, NY, from June 6 - 8,
2017. During this conference, management may discuss the Company's
current operating environment; operating trends; development,
redevelopment, disposition and acquisition activity; portfolio
strategy and other business and financial matters affecting the
Company. Details on how to access related materials will be
available beginning June 6, 2017 on the Company's website at
http://www.avalonbay.com/events.
Other Matters
The Company will hold a conference call on April 27, 2017 at
1:00 PM ET to review and answer questions about this release, its
first quarter 2017 results, the Attachments (described below) and
related matters. To participate on the call, dial 888-601-3864
domestically and 913-312-0653 internationally and use conference
id: 4716119.
To hear a replay of the call, which will be available from April
27, 2017 at 6:00 PM ET to May 4, 2017 at 6:00 PM ET, dial
888-203-1112 domestically and 719-457-0820 internationally and use
conference id: 4716119. A webcast of the conference call will also
be available at http://www.avalonbay.com/earnings, and an on-line
playback of the webcast will be available for at least seven days
following the call.
The Company produces Earnings Release Attachments (the
"Attachments") that provide detailed information regarding
operating, development, redevelopment, disposition and acquisition
activity. These Attachments are considered a part of this earnings
release and are available in full with this earnings release via
the Company's website at http://www.avalonbay.com/earnings. To
receive future press releases via e-mail, please submit a request
through http://www.avalonbay.com/email.
In addition to the Attachments, the Company is providing a
teleconference presentation that will be available on the Company's
website at http://www.avalonbay.com/earnings subsequent to this
release and before the market opens on April 27, 2017. These
supplemental materials will be available on the Company's website
for 30 days following the earnings call.
About AvalonBay Communities, Inc.
As of March 31, 2017, the Company owned or held a direct or
indirect ownership interest in 284 apartment communities containing
82,533 apartment homes in 10 states and the District of Columbia,
of which 24 communities were under development and nine communities
were under redevelopment. The Company is an equity REIT in the
business of developing, redeveloping, acquiring and managing
apartment communities in leading metropolitan areas in New England,
the New York/New Jersey Metro area, the Mid-Atlantic, the Pacific
Northwest, and the Northern and Southern California regions of the
United States. More information may be found on the Company’s
website at http://www.avalonbay.com. For additional information,
please contact Jason Reilley, Senior Director of Investor Relations
at 703-317-4681.
Forward-Looking Statements
This release, including its Attachments, contains
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking
statements, which you can identify by the Company’s use of words
such as “expects,” “plans,” “estimates,” “anticipates,” “projects,”
“intends,” “believes,” “outlook” and similar expressions that do
not relate to historical matters, are based on the Company’s
expectations, forecasts and assumptions at the time of this
release, which may not be realized and involve risks and
uncertainties that cannot be predicted accurately or that might not
be anticipated. These could cause actual results to differ
materially from those expressed or implied by the forward-looking
statements. Risks and uncertainties that might cause such
differences include the following, among others: we may abandon
development or redevelopment opportunities for which we have
already incurred costs; adverse capital and credit market
conditions may affect our access to various sources of capital
and/or cost of capital, which may affect our business activities,
earnings and common stock price, among other things; changes in
local employment conditions, demand for apartment homes, supply of
competitive housing products, and other economic 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 Company's
expectations and assumptions as of the date of this release
regarding potential uninsured loss amounts and on-going
investigations resulting from the casualty loss at Avalon at
Edgewater ("Edgewater") are subject to change and could materially
affect the Company's current expectations regarding the impact of
the fire. 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, 2016 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 2017 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 and further explained on
Attachment 12, Definitions and Reconciliations of Non-GAAP
Financial Measures and Other Terms. Attachment 12 is included in
the full earnings release available at the Company’s website at
http://www.avalonbay.com/earnings. This wire distribution includes
only definitions and reconciliations of the following non-GAAP
financial measures:
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.
Economic Gain (Loss) is calculated
by the Company as the gain (loss) on sale in accordance with GAAP,
less accumulated depreciation through the date of sale and any
other non-cash adjustments that may be required under GAAP
accounting. Management generally considers Economic Gain (Loss) to
be an appropriate supplemental measure to gain (loss) on sale in
accordance with GAAP because it helps investors to understand the
relationship between the cash proceeds from a sale and the cash
invested in the sold community. The Economic Gain (Loss) for each
of the communities presented is based on their respective final
settlement statements. A reconciliation of Economic Gain (Loss) to
gain on sale in accordance with GAAP for the three months ended
March 31, 2017 as well as prior years’ activities is presented
elsewhere in the full release.
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.
Established Communities are
consolidated communities where a comparison of operating results
from the prior year to the current year is meaningful, as these
communities were owned and had Stabilized Operations, as defined
below, as of the beginning of the respective prior year period.
Therefore, for 2017 operating results, Established Communities are
consolidated communities that have Stabilized Operations as of
January 1, 2016, are not conducting or planning to conduct
substantial redevelopment activities and are not held for sale or
planned for disposition within the current year.
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 the Board of Governors of
the National Association of Real Estate Investment Trusts
(“NAREIT”). FFO is calculated by the Company as Net income or loss
attributable to common stockholders computed in accordance with
GAAP, adjusted for gains or losses on sales of previously
depreciated operating communities, cumulative effect of a change in
accounting principle, impairment write-downs of depreciable real
estate assets, write-downs of investments in affiliates which are
driven by a decrease in the value of depreciable real estate assets
held by the affiliate and depreciation of real estate assets,
including adjustments for unconsolidated partnerships and joint
ventures. By excluding gains or losses related to dispositions of
previously depreciated operating communities and excluding real
estate depreciation (which can vary among owners of identical
assets in similar condition based on historical cost accounting and
useful life estimates), FFO can help one compare the operating and
financial performance of a company’s real estate between periods or
as compared to different companies. Core FFO is the Company's FFO
as adjusted for non-core items outlined in the table below. By
further adjusting for items that are not considered part of our
core business operations, Core FFO can help one compare the core
operating and financial performance of the Company between periods.
A reconciliation of Net income attributable to common stockholders
to FFO and to Core FFO is as follows (dollars in thousands):
Q1 Q1 2017 2016 Net income attributable to
common stockholders $ 235,875 $ 237,931 Depreciation - real estate
assets, including joint venture adjustments 140,957 127,701
Distributions to noncontrolling interests 11 10 Gain on sale of
unconsolidated entities holding previously depreciated real estate
(8,697 ) (29,625 ) Gain on sale of previously depreciated real
estate (87,949 ) (51,430 ) FFO attributable to common
stockholders 280,197 284,587 Adjusting items: Joint venture
losses (1) 266 4,994 Joint venture promote (2) (6,765 ) —
Impairment loss on real estate (3)(5) 9,350 6,500 Casualty loss
(gain), net on real estate (4)(5) 2,338 (8,702 ) Business
interruption insurance proceeds (6) — (20,334 ) Lost NOI from
casualty losses covered by business interruption insurance (7)
1,805 1,870 Severance related costs 124 585 Development pursuit and
other write-offs 423 433 Gain on sale of other real estate (366 ) —
Acquisition costs — 1,101 Core FFO
attributable to common stockholders $ 287,372 $ 271,034
Average shares outstanding - diluted 137,531,242
137,383,044 Earnings per share - diluted $ 1.72 $
1.73 FFO per common share - diluted $ 2.04 $ 2.07
Core FFO per common share - diluted $ 2.09 $ 1.97
(1) Amount for 2016 is primarily composed of the
Company's portion of yield maintenance charges incurred for the
early repayment of debt associated with joint venture disposition
activity and the write-off of asset management fee intangibles
primarily associated with the disposition of communities in the
U.S. Fund. (2) Amount for 2017 is composed of the Company's
recognition of its promoted interest in Fund II. (3) Amount
for 2017 includes an impairment charge for a land parcel the
Company had acquired for development and no longer intends to
develop. Amount for 2016 includes impairment charges relating to
ancillary land parcels. (4) Amount for 2017 includes $19,481
for the Maplewood casualty loss, partially offset by $17,143 of
expected property damage insurance proceeds, a portion of which
were received during the period. Amount for 2016 is property damage
insurance proceeds for the Edgewater casualty loss. (5)
Aggregate impact of (i) Impairment loss on real estate and (ii)
Casualty loss (gain), net on real estate for 2017 and 2016, is a
loss of $11,688 and a gain of $2,202, respectively. (6)
Amount for 2016 is primarily composed of business interruption
insurance proceeds resulting from the final insurance settlement of
the Edgewater casualty loss. (7) Amounts relate to a
casualty event at Edgewater in Q1 2015, for which the Company
received $20,306 in business interruption insurance proceeds in Q1
2016.
Initial Year Market Cap Rate is
defined by the Company as Projected NOI of a single community for
the first 12 months of operations (assuming no repositioning), less
estimates for non-routine allowance of approximately $300 - $500
per apartment home, divided by the gross sales price for the
community. Projected NOI, as referred to above, represents
management’s estimate of projected rental revenue minus projected
operating expenses before interest, income taxes (if any),
depreciation and amortization. For this purpose, management’s
projection of operating expenses for the community includes a
management fee of 2.5% - 3.5%. The Initial Year Market Cap
Rate, which may be determined in a different manner by others, is a
measure frequently used in the real estate industry when
determining the appropriate purchase price for a property or
estimating the value for a property. Buyers may assign different
Initial Year Market Cap Rates to different communities when
determining the appropriate value because they (i) may project
different rates of change in operating expenses and capital
expenditure estimates and (ii) may project different rates of
change in future rental revenue due to different estimates for
changes in rent and occupancy levels. The weighted average Initial
Year Market Cap Rate is weighted based on the gross sales price of
each community.
Interest Coverage is calculated by
the Company as Core EBITDA 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. 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.
A reconciliation of Core EBITDA and a calculation of Interest
Coverage for the three months ended March 31, 2017 are as follows
(dollars in thousands):
Net income attributable to common stockholders $
235,875 Interest expense, net, inclusive of loss on extinguishment
of debt, net 49,295 Income tax expense 20 Depreciation expense
140,621 EBITDA $ 425,811 NOI from real
estate assets sold or held for sale (1,387 ) Gain on sale of
communities (87,949 ) Gain on sale of other real estate (366 )
Joint venture income (16,672 ) Consolidated EBITDA after
disposition activity $ 319,437 Casualty and
impairment loss (gain), net 11,688 Lost NOI from casualty losses
covered by business interruption insurance 1,805 Severance related
costs 124 Development pursuit and other write-offs 423
Core EBITDA $ 333,477 Interest expense, net $
49,295 Interest Coverage 6.8 times
Net Debt-to-Core EBITDA is
calculated by the Company as total debt that is consolidated for
financial reporting purposes, less consolidated cash and cash in
escrow, divided by annualized first quarter 2017 Core EBITDA, as
adjusted. For a calculation of Core EBITDA, see "Interest Coverage"
above. A calculation of Net Debt-to-Core EBITDA is as follows
(dollars in thousands):
Total debt principal (1) $ 7,054,852 Cash and cash in
escrow (368,720 ) Net debt $ 6,686,132 Core
EBITDA $ 333,477 Core EBITDA, annualized $ 1,333,908
Net Debt-to-Core EBITDA 5.0 times (1) Balance
at March 31, 2017 excludes $8,640 of debt discount and $26,814 of
deferred financing costs as reflected in unsecured notes, net, and
$3,044 of debt discount and $10,625 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,
investments and investment management expenses, expensed
acquisition, 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, depreciation expense, corporate income tax expense,
casualty and impairment loss (gain), net, gain on sale of real
estate 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):
Q1 Q1 Q4 2017 2016 2016 Net income $
235,781 $ 237,877 $ 242,183 Indirect operating expenses, net of
corporate income 16,297 16,537 14,443 Investments and investment
management expense 1,321 1,145 1,277 Expensed acquisition,
development and other pursuit costs, net of recoveries 728 3,462
1,220 Interest expense, net 49,295 43,410 49,648 Loss on
extinguishment of debt, net — — 4,614 General and administrative
expense 13,226 11,441 10,638 Joint venture income (16,672 ) (27,969
) (10,184 ) Depreciation expense 140,621 127,216 140,020 Casualty
and impairment loss (gain), net 11,688 (2,202 ) — Gain on sale of
real estate (88,315 ) (51,430 ) (89,344 ) NOI from real estate
assets sold or held for sale (1,387 ) (8,606 )
(2,828 ) NOI $ 362,583 $ 350,881 $ 361,687
Established: New England $ 37,816 $ 36,600 $ 38,854 Metro
NY/NJ 60,060 57,860 60,998 Mid-Atlantic 39,147 37,763 39,369
Pacific NW 14,815 14,080 14,674 No. California 63,717 62,495 64,237
So. California 60,551 56,992
59,570 Total Established 276,106
265,790 277,702 Other Stabilized (1) 51,571
54,591 50,689 Development/Redevelopment 34,906
30,500 33,296 NOI $ 362,583 $ 350,881
$ 361,687 (1) NOI for Q1 2016 Other Stabilized
Communities includes $20,306 of business interruption insurance
proceeds related to the Edgewater casualty loss.
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):
Q1 Q1 2017 2016 Revenue from real
estate assets sold or held for sale $ 2,650 $ 13,916 Operating
expenses from real estate assets sold or held for sale
(1,263 ) (5,310 ) NOI from real estate assets sold or held
for sale $ 1,387 $ 8,606
Other Stabilized Communities are
completed consolidated communities that the Company owns, which
have Stabilized Operations as of January 1, 2017. Other
Stabilized Communities do not include communities that are
conducting or planning to conduct substantial redevelopment
activities.
Projected FFO and Projected Core
FFO, as provided within this release in the Company’s
outlook, are calculated on a basis consistent with historical FFO
and Core FFO, and are therefore considered to be appropriate
supplemental measures to projected Net Income from projected
operating performance. A reconciliation of the ranges provided
for Projected FFO per share (diluted) for the second quarter 2017
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:
LowRange
HighRange
Projected EPS (diluted) - Q2 2017 $ 1.50 $ 1.56 Depreciation (real
estate related) 1.01 1.05 Gain on sale of communities (0.33
) (0.37 ) Projected FFO per share (diluted) - Q2 2017
2.18 2.24 Joint venture income,
development pursuit and other write-offs (0.04 ) (0.04 ) Lost NOI
from casualty losses covered by business interruption insurance
0.01 0.01 Gain on extinguishment of consolidated debt (0.08
) (0.08 ) Projected Core FFO per share (diluted) - Q2
2017 $ 2.07 $ 2.13
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 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.
Projected Stabilized Yield (also
expressed as “weighted average initial stabilized yield” or words
of similar meaning) means Projected NOI as a percentage of Total
Capital Cost.
Rental Revenue with Concessions on a Cash
Basis is considered by the Company to be a supplemental
measure to rental revenue in conformity with GAAP to help investors
evaluate the impact of both current and historical concessions on
GAAP-based rental revenue and to more readily enable comparisons to
revenue as reported by other companies. In addition, Rental Revenue
with Concessions on a Cash Basis allows an investor to understand
the historical trend in cash concessions.
A reconciliation of rental revenue from Established Communities
in conformity with GAAP to Rental Revenue with Concessions on a
Cash Basis is as follows (dollars in thousands):
Q1 Q1 2017 2016 Rental revenue (GAAP basis) $
388,686 $ 376,754 Concessions amortized 479 932 Concessions granted
(286 ) (251 )
Rental Revenue with Concessions on a Cash
Basis
$ 388,879 $ 377,435 % change -- GAAP revenue
3.2 % % change -- cash revenue 3.0 %
Stabilized Operations/Restabilized
Operations is defined as the earlier of (i) attainment
of 95% physical occupancy or (ii) the one-year anniversary of
completion of development or redevelopment.
Total Capital Cost includes all
capitalized costs projected to be or actually incurred to develop
the respective development or redevelopment community, or
development right, including land acquisition costs, construction
costs, real estate taxes, capitalized interest and loan fees,
permits, professional fees, allocated development overhead and
other regulatory fees, offset by proceeds from the sale of any
associated land or improvements, all as determined in accordance
with GAAP. For redevelopment communities, Total Capital Cost
excludes costs incurred prior to the start of redevelopment when
indicated. With respect to communities where development or
redevelopment was completed in a prior or the current period, Total
Capital Cost reflects the actual cost incurred, plus any
contingency estimate made by management. Total Capital Cost for
communities identified as having joint venture ownership, either
during construction or upon construction completion, represents the
total projected joint venture contribution amount. For joint
ventures not in construction, Total Capital Cost is equal to gross
real estate cost.
Unencumbered NOI as calculated by
the Company represents NOI generated by real estate assets
unencumbered by outstanding secured debt as a percentage of total
NOI generated by real estate assets. The Company believes that
current and prospective unsecured creditors of the Company view
Unencumbered NOI as one indication of the borrowing capacity of the
Company. Therefore, when reviewed together with the Company’s
Interest Coverage, EBITDA and cash flow from operations, the
Company believes that investors and creditors view Unencumbered NOI
as a useful supplemental measure for determining the financial
flexibility of an entity. A calculation of Unencumbered NOI for the
three months ended March 31, 2017 is as follows (dollars in
thousands):
Q1 2017 NOI NOI for Established Communities $ 276,106
NOI for Other Stabilized Communities 51,571 NOI for
Development/Redevelopment Communities 34,906 NOI from real estate
assets sold or held for sale 1,387 Total NOI
generated by real estate assets 363,970 NOI on encumbered assets
70,784 NOI on unencumbered assets $ 293,186
Unencumbered NOI 81 %
Unleveraged IRR on sold communities
refers to the internal rate of return calculated by the Company
considering the timing and amounts of (i) total revenue during
the period owned by the Company and (ii) the gross sales price
net of selling costs, offset by (iii) the undepreciated
capital cost of the communities at the time of sale and
(iv) total direct operating expenses during the period owned
by the Company. Each of the items (i), (ii), (iii) and
(iv) is calculated in accordance with GAAP.
The calculation of Unleveraged IRR does not include an
adjustment for the Company’s general and administrative expense,
interest expense, or corporate-level property management and other
indirect operating expenses. Therefore, Unleveraged IRR is not a
substitute for Net Income as a measure of our performance.
Management believes that the Unleveraged IRR achieved during the
period a community is owned by the Company is useful because it is
one indication of the gross value created by the Company’s
acquisition, development or redevelopment, management and sale of a
community, before the impact of indirect expenses and Company
overhead. The Unleveraged IRR achieved on the communities as cited
in this release should not be viewed as an indication of the gross
value created with respect to other communities owned by the
Company, and the Company does not represent that it will achieve
similar Unleveraged IRRs upon the disposition of other communities.
The weighted average Unleveraged IRR for sold communities is
weighted based on all cash flows over the investment period for
each respective community, including net sales proceeds.
Copyright © 2017 AvalonBay Communities, Inc.
All Rights Reserved
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version on businesswire.com: http://www.businesswire.com/news/home/20170426006697/en/
AvalonBay Communities, Inc.Jason Reilley, Senior Director of
Investor Relations703-317-4681
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