AvalonBay Communities, Inc. (NYSE: AVB) (the “Company”) reported
today that Net Income Attributable to Common Stockholders for the
three months ended March 31, 2020 was $167,971,000. This resulted
in a decrease in Earnings per Share – diluted (“EPS”) for the three
months ended March 31, 2020 of 3.3% to $1.19 from $1.23 for the
prior year period.
Funds from Operations attributable to common stockholders -
diluted (“FFO”) per share for the three months ended March 31, 2020
decreased 1.3% to $2.28 from $2.31 for the prior year period. Core
FFO per share (as defined in this release) for the three months
ended March 31, 2020 increased 3.9% to $2.39 from $2.30 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 March 31, 2020 to its results for the prior year period:
Q1 2020 Results Compared to Q1
2019
Per Share (1)
EPS
FFO
Core FFO
Q1 2019 per share reported results
$
1.23
$
2.31
$
2.30
Established Community NOI
0.08
0.08
0.08
Development and Other Stabilized Community
NOI
0.10
0.10
0.10
Capital markets and transaction
activity
(0.12
)
(0.13
)
(0.06
)
Joint venture income
(0.01
)
(0.01
)
(0.01
)
Overhead and other
(0.07
)
(0.07
)
(0.02
)
Gain on sale of real estate and
depreciation expense
(0.02
)
—
—
Q1 2020 per share reported results
$
1.19
$
2.28
$
2.39
(1) For additional detail on reconciling
items between EPS, FFO and Core FFO, see Definitions and
Reconciliations, table 3.
Established Communities Operating Results for the Three
Months Ended March 31, 2020 Compared to the Prior Year
Period
For Established Communities, total revenue increased
$16,127,000, or 3.0%, to $547,956,000. Operating expenses for
Established Communities increased $4,819,000, or 3.2%, to
$156,311,000. NOI for Established Communities increased
$11,308,000, or 3.0%, to $391,645,000. Rental revenue for
Established Communities increased 3.1% as a result of an increase
in Average Rental Rates of 2.7% and Economic Occupancy of 0.4%.
The following table reflects the percentage changes in rental
revenue, operating expenses and NOI for Established Communities for
the three months ended March 31, 2020 compared to the three months
ended March 31, 2019:
Q1 2020 Compared to Q1
2019
Rental Revenue (1)
Opex (2)
NOI
% of NOI (3)
New England
3.8
%
5.2
%
3.1
%
14.1
%
Metro NY/NJ
2.0
%
2.4
%
1.8
%
22.1
%
Mid-Atlantic
3.8
%
(0.2
)%
5.4
%
15.9
%
Pacific NW
3.3
%
4.0
%
3.1
%
6.3
%
No. California
3.0
%
6.0
%
2.2
%
20.3
%
So. California
3.0
%
2.6
%
3.2
%
20.5
%
Expansion Mkts
1.2
%
6.5
%
(2.4
)%
0.8
%
Total
3.1
%
3.2
%
3.0
%
100.0
%
(1) See full release for additional
detail.
(2) See full release for discussion of
variances.
(3) Represents % of total NOI for Q1 2020,
including amounts related to communities that have been sold or
that are classified as held for sale.
COVID-19 Policy and Operational Updates
Resident and Associate Update
The Company has taken various actions in response to the
COVID-19 pandemic to adjust our business operations and to address
the needs of our residents and associates. The Company is committed
to the health and safety of its associates and residents and has
implemented many new protocols based on the Centers for Disease
Control (CDC) and other government-mandated or recommended
guidelines, including establishing social-distancing procedures and
other safety and operating measures. The Company has made changes
to its daily operations at its communities that include the
following:
- community office practices have been modified to minimize
in-person contact, with resident support being provided through
phone and e-mail communications where possible and by leveraging
the Company's digital solutions and centralized Customer Care
Center;
- communities have implemented enhanced cleaning and disinfecting
protocols and have closed common area amenities;
- apartment maintenance requests are being completed for
essential or emergency services only and maintenance associates
have been instructed on proper personal protective equipment (PPE)
to use when performing work; and
- prospect tours are generally being completed on a self-guided
basis or through virtual channels.
The Company has also adopted certain measures to help mitigate
the financial impact arising from the pandemic on its residents,
including the following:
- providing flexible lease renewal options at no rent increase
for leases expiring through June 30, 2020;
- creating payment plans for residents who are unable to pay
their rent because they are impacted by this pandemic; and
- waiving late fees and certain other customary fees associated
with apartment rentals.
To support its associates during this difficult time, the
Company has elected to (i) adopt new, temporary leave policies and
is providing all full- and part-time associates with up to six
weeks of emergency paid leave to use in the event they have been
materially impacted by COVID-19, as well as (ii) pay the full cost
of testing and inpatient treatment resulting from COVID-19 for
members of its healthcare plan.
April Established Communities Collections Update
The following table provides an update for April 2020
residential revenue collections for Established Communities,
through April 30, 2020, detailed by (i) major customer segment and
(ii) percentage of rent collected as compared to rent deferred and
uncollected. Billed residential revenue consists 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 ("Billed Residential Revenue").
Collected residential revenue represents the portion of Billed
Residential Revenue that has been collected and satisfied
("Collected Residential Revenue"). The deferred and uncollected
portion of Billed Residential Revenue represents the portion that
is either covered by an established payment plan where rent is
deferred to a future period or is otherwise not yet collected
("Deferred and Uncollected Residential Revenue").
Established Communities
Collections - April 2020 (1)
Billed Residential
Revenue
Collected Residential
Revenue
Deferred and Uncollected
Residential Revenue
Residential Revenue
Market rent apartments
94.3
%
94.5
%
5.5
%
Affordable apartments
2.8
%
92.0
%
8.0
%
Corporate apartments
2.9
%
74.0
%
26.0
%
Total Residential Revenue
100.0
%
93.9
%
6.1
%
AVB Residential Revenue benchmark (2)
97.9
%
2.1
%
April 2020 Collected Residential Revenue
as a % of AVB benchmark
95.9
%
(1) Information presented above excludes
(i) billed and collected transactional fees, such as application
and cancellation fees and (ii) certain fees that would have been
billed and collected under the lease terms, such as common area
amenity, late and credit card fees, which were waived in April 2020
due to the closure of the Company’s amenity spaces or to mitigate
the financial impact of COVID-19 on residents. The fees waived in
(ii) above averaged $1,400,000 per month for the period from April
2019 to March 2020.
(2) Amounts represent the Company's
historical weighted average monthly percentages as of the last day
of the month for the period of April 2019 to March 2020.
Retail revenue for Established Communities represented 1.4% of
the total revenue for Established Communities for full year 2019.
For April 2020, collected retail revenue and deferred and
uncollected retail revenue was 44% and 56%, respectively.
The impact from COVID-19 on the Company's consolidated results
of operations, including expectations of dispositions of real
estate, will be dictated by the duration and severity of the
pandemic, and how quickly and to what extent normal economic and
operating conditions resume. Given those factors are beyond the
Company's control and knowledge, the adverse impact of the pandemic
on the Company's results of operations cannot be reasonably
estimated, and could be material. In addition, the Company's
historical results, including results for the three months ended
March 31, 2020 and information for the month ended April 30, 2020,
may not be indicative of results for future periods.
Development Activity
During the three months ended March 31, 2020, the Company
completed the development of three apartment communities:
- Avalon Teaneck, located in Teaneck, NJ;
- Avalon North Creek, located in Bothell, WA; and
- Avalon Norwood, located in Norwood, MA.
These communities contain an aggregate of 762 apartment homes
and were constructed for a Total Capital Cost of $217,000,000.
The Company has not started the construction of any new
development communities during the three months ended March 31,
2020 and through the date of this release, and will evaluate future
starts on an individual basis, based on evolving economic and
market conditions.
At March 31, 2020, the Company had 19 Development Communities
under construction that in the aggregate are expected to contain
6,198 apartment homes and 64,000 square feet of retail space.
Estimated Total Capital Cost at completion for these Development
Communities is $2,323,000,000 at share. As of March 31, 2020, the
Company has an estimated remaining Total Capital Cost of
$873,000,000 to invest over the next several years, including the
19 Development Communities under construction and recently
completed Development Communities.
The projected Total Capital Cost of Development Rights at March
31, 2020 decreased to $4.1 billion from $4.2 billion at December
31, 2019.
COVID-19 Development Update
As of April 30, 2020, construction at six of the Company's
Development Communities had been temporarily suspended after
considering state and local regulations and/or advisories, and
construction at many of the remaining Development Communities had
been slowed due to the impact of safety precautions, labor
availability and inspection constraints. As of May 4, 2020, the
Company is in the process of restarting construction at four of the
six communities that had been temporarily suspended, after changes
in state and local advisories in Washington state and Northern
California. The Company may be required to, or may in its
discretion, temporarily suspend ongoing construction at one or more
of its remaining Development Communities as a result of either
governmental actions or social or economic conditions arising as a
result of the COVID-19 pandemic.
Disposition Activity
During the three months ended March 31, 2020, the Company sold
Avalon Shelton, a wholly-owned operating community, located in
Shelton, CT. Avalon Shelton contains 250 apartment homes and was
sold for $64,750,000, resulting in a gain in accordance with GAAP
of $24,413,000 and an Economic Gain of $14,928,000.
During the three months ended March 31, 2020, the Company sold
36 of the 172 residential condominiums at The Park Loggia, located
in New York, NY, for gross proceeds of $105,607,000. At March 31,
2020, 64% of the 67,000 square feet of retail space has been
leased. In addition, subsequent to quarter end and through the date
of this release, the Company sold five residential condominiums for
gross proceeds of $23,292,000.
Liquidity and Capital Markets
At March 31, 2020, the Company had $750,000,000 outstanding
under its $1,750,000,000 unsecured credit facility. Including
amounts drawn on the unsecured credit facility, the Company had
$868,421,000 in unrestricted cash and cash in escrow. As of April
30, 2020, the Company has $215,000,000 outstanding under its
unsecured credit facility, after having used unrestricted cash for
net repayments of $535,000,000 during April 2020.
The Company’s annualized Net Debt-to-Core EBITDAre (as defined
in this release) for the first quarter of 2020 was 4.6 times and
Unencumbered NOI (as defined in this release) was 93%.
During the three months ended March 31, 2020, the Company had
the following debt activity:
- The Company issued $700,000,000 principal amount of unsecured
notes in a public offering under its existing shelf registration
statement for net proceeds of $694,701,000. The notes mature in
March 2030 and were issued with a 2.30% coupon. The effective
interest rate of the notes is 2.68%, including the impact of an
interest rate hedge and offering costs.
- 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 obtained a $51,000,000 mortgage note with a
maturity date of March 2027 with 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%.
Other Matters
The Company will hold a conference call on May 7, 2020 at 12:00
PM ET to review and answer questions about this release, its first
quarter 2020 results, the Attachments (described below) and related
matters. To participate on the call, dial 888-394-8218 and use
conference id: 8962631.
To hear a replay of the call, which will be available from May
7, 2020 at 5:00 PM ET to May 14, 2020 at 5:00 PM ET, dial
888-203-1112 and use conference id: 8962631. 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 May 7, 2020.
About AvalonBay Communities, Inc.
As of March 31, 2020, the Company owned or held a direct or
indirect ownership interest in 296 apartment communities containing
86,596 apartment homes in 11 states and the District of Columbia,
of which 19 communities were under development. 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 and (ii) 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. Due to this
uncertainty we are not able at this time to estimate the effect of
these factors on our business, but the adverse impact 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 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 2019 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. 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 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 the following definitions and
reconciliations.
Average Rental Rates are calculated
by the Company as rental revenue in accordance with GAAP, divided
by the weighted average number of occupied apartment homes.
Development Communities are
communities that are either currently under construction, or were
under construction and were completed during the current year.
These communities may be partially or fully complete and
operating.
Development Rights are development
opportunities in the early phase of the development process for
which the Company either has an option to acquire land or enter
into a leasehold interest, for which the Company is the buyer under
a long-term conditional contract to purchase land, where the
Company controls the land through a ground lease or owns land to
develop a new community, or where the Company is the designated
developer in a public-private partnership. The Company capitalizes
related pre-development costs incurred in pursuit of new
developments for which the Company currently believes future
development is probable.
Economic Occupancy (“Ec Occ”) is
defined as total possible revenue less vacancy loss as a percentage
of total possible revenue. Total possible revenue (also known as
“gross potential”) is determined by valuing occupied units at
contract rates and vacant units at Market Rents. Vacancy loss is
determined by valuing vacant units at current Market Rents. By
measuring vacant apartments at their Market Rents, Economic
Occupancy takes into account the fact that apartment homes of
different sizes and locations within a community have different
economic impacts on a community’s gross revenue.
Economic Gain 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
non-cash 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 three months ended March 31, 2020 is as
follows (dollars in thousands):
TABLE 1
Q1 2020
GAAP Gain
$
24,413
Accumulated Depreciation and Other
(9,485
)
Economic Gain
$
14,928
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.
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 2
Q1
2020
Net income
$
168,006
Interest expense, net, inclusive of loss
on extinguishment of debt, net
65,084
Income tax expense
91
Depreciation expense
177,911
EBITDA
$
411,092
Gain on sale of communities
(24,436
)
Joint venture EBITDAre adjustments (1)
3,421
EBITDAre
$
390,077
Gain on other real estate transactions
(43
)
Advocacy contributions
301
Severance related costs
1,951
Development pursuit write-offs and
expensed transaction costs, net
3,120
Gain on for-sale condominiums
(4,903
)
For-sale condominium marketing and
administrative costs
1,443
Legal settlements
43
Core EBITDAre
$
391,989
(1) Includes joint venture interest,
taxes, depreciation, gain on dispositions of depreciated real
estate and impairment losses, if applicable, included in net
income.
FFO and Core FFO are considered by
management to be supplemental measures of our operating and
financial performance. FFO is calculated by the Company in
accordance with the definition adopted by NAREIT. FFO is calculated
by the Company as Net income or loss attributable to common
stockholders computed in accordance with GAAP, adjusted for gains
or losses on sales of previously depreciated operating communities,
cumulative effect of a change in accounting principle, impairment
write-downs of depreciable real estate assets, write-downs of
investments in affiliates which are driven by a decrease in the
value of depreciable real estate assets held by the affiliate and
depreciation of real estate assets, including adjustments for
unconsolidated partnerships and joint ventures. By excluding gains
or losses related to dispositions of previously depreciated
operating communities and excluding real estate depreciation (which
can vary among owners of identical assets in similar condition
based on historical cost accounting and useful life estimates), FFO
can help one compare the operating and financial performance of a
company’s real estate between periods or as compared to different
companies. Core FFO is the Company's FFO as adjusted for non-core
items outlined in the table below. By further adjusting for items
that are not considered part of our core business operations, Core
FFO can help one compare the core operating and financial
performance of the Company between periods. A reconciliation of Net
income attributable to common stockholders to FFO and to Core FFO
is as follows (dollars in thousands):
TABLE 3
Q1
Q1
2020
2019
Net income attributable to common
stockholders
$
167,971
$
170,366
Depreciation - real estate assets,
including joint venture adjustments
177,428
164,746
Distributions to noncontrolling
interests
12
11
Gain on sale of previously depreciated
real estate
(24,436
)
(14,835
)
FFO attributable to common
stockholders
320,975
320,288
Adjusting items:
Business interruption insurance
proceeds
—
(172
)
Loss on extinguishment of consolidated
debt
9,170
280
Advocacy contributions
301
—
Severance related costs
1,951
19
Development pursuit write-offs and
expensed transaction costs, net
3,120
277
Gain on for-sale condominiums (1)(2)
(4,903
)
—
For-sale condominium marketing and
administrative costs (2)
1,443
473
For-sale condominium imputed carry cost
(3)
3,609
—
Gain on other real estate transactions
(43
)
(267
)
Legal settlements
43
(1,016
)
Income tax expense (benefit)
91
(6
)
Core FFO attributable to common
stockholders
$
335,757
$
319,876
Average shares outstanding - diluted
140,777,873
138,832,201
Earnings per share - diluted
$
1.19
$
1.23
FFO per common share - diluted
$
2.28
$
2.31
Core FFO per common share - diluted
$
2.39
$
2.30
(1) Amount for the three months ended
March 31, 2020 includes the sale of 36 residential condominiums at
The Park Loggia.
(2) Aggregate impact of (i) Gains on
for-sale condominiums and (ii) For-sale condominium marketing and
administrative costs, is a net gain of $3,460 for Q1 2020 and a
loss of $473 for Q1 2019.
(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.
Initial Year Market Cap Rate is
defined by the Company as Projected NOI of a single community for
the first 12 months of operations (assuming no repositioning), less
estimates for non-routine allowance of approximately $300 - $500
per apartment home, divided by the gross sales price for the
community. Projected NOI, as referred to above, represents
management’s estimate of projected rental revenue minus projected
operating expenses before interest, income taxes (if any),
depreciation and amortization. For this purpose, management’s
projection of operating expenses for the community includes a
management fee of 2.5% - 3.5%. The Initial Year Market Cap Rate,
which may be determined in a different manner by others, is a
measure frequently used in the real estate industry when
determining the appropriate purchase price for a property or
estimating the value for a property. Buyers may assign different
Initial Year Market Cap Rates to different communities when
determining the appropriate value because they (i) may project
different rates of change in operating expenses and capital
expenditure estimates and (ii) may project different rates of
change in future rental revenue due to different estimates for
changes in rent and occupancy levels. The weighted average Initial
Year Market Cap Rate is weighted based on the gross sales price of
each community.
Interest Coverage is calculated by
the Company as Core EBITDAre, divided by the sum of interest
expense, net, and preferred dividends, if applicable. Interest
Coverage is presented by the Company because it provides rating
agencies and investors an additional means of comparing our ability
to service debt obligations to that of other companies. A
calculation of Interest Coverage for the three months ended March
31, 2020 is as follows (dollars in thousands):
TABLE 4
Core EBITDAre
$
391,989
Interest expense, net
$
55,914
Interest Coverage
7.0 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 first
quarter 2020 Core EBITDAre, as adjusted. A calculation of Net
Debt-to-Core EBITDAre is as follows (dollars in thousands):
TABLE 5
Total debt principal (1)
$
8,154,888
Cash and cash in escrow
(868,421
)
Net debt
$
7,286,467
Core EBITDAre
$
391,989
Core EBITDAre, annualized
$
1,567,956
Net Debt-to-Core EBITDAre
4.6 times
(1) Balance at March 31, 2020 excludes
$8,880 of debt discount and $36,688 of deferred financing costs as
reflected in unsecured notes, net, and $14,671 of debt discount and
$3,192 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,
for-sale condominium marketing and administrative costs 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 6
Q1
Q1
Q4
2020
2019
2019
Net income
$
168,006
$
170,418
$
167,671
Indirect operating expenses, net of
corporate income
22,799
19,722
20,073
Expensed transaction, development and
other pursuit costs, net of recoveries
3,334
622
2,428
Interest expense, net
55,914
47,892
54,190
Loss on extinguishment of debt, net
9,170
280
—
General and administrative expense
17,320
13,706
12,602
Joint venture (income) loss
(1,175
)
1,060
(7,872
)
Depreciation expense
177,911
162,057
171,364
Income tax expense (benefit)
91
(6
)
1,825
Gain on sale of communities
(24,436
)
(14,835
)
(256
)
Gain on other real estate transactions
(43
)
(267
)
(65
)
Gain on for-sale condominiums, net of
marketing and administrative costs
(3,460
)
473
1,286
NOI from real estate assets sold or held
for sale
(896
)
(6,205
)
(1,848
)
NOI
$
424,535
$
394,917
$
421,398
Established:
New England
$
53,680
$
52,083
$
54,868
Metro NY/NJ
84,484
82,984
85,463
Mid-Atlantic
66,309
62,916
66,404
Pacific NW
20,838
20,210
20,687
No. California
80,451
78,715
79,415
So. California
82,455
79,916
82,323
Expansion Markets
3,428
3,513
3,401
Total Established
391,645
380,337
392,561
Other Stabilized
23,496
14,729
22,724
Development/Redevelopment (1)
9,394
(149
)
6,113
NOI
$
424,535
$
394,917
$
421,398
(1) The Company had no Redevelopment
Communities for the periods presented.
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
Q1
Q1
Q4
2020
2019
2019
Revenue from real estate assets sold or
held for sale
$
1,424
$
10,640
$
2,721
Operating expenses from real estate assets
sold or held for sale
(528
)
(4,435
)
(873
)
NOI from real estate assets sold or held
for sale
$
896
$
6,205
$
1,848
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 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.
Rental Revenue with Concessions on a Cash
Basis is considered by the Company to be a supplemental
measure to rental revenue in conformity with GAAP to help investors
evaluate the impact of both current and historical concessions on
GAAP-based rental revenue and to more readily enable comparisons to
revenue as reported by other companies. In addition, Rental Revenue
with Concessions on a Cash Basis allows an investor to understand
the historical trend in cash concessions.
A reconciliation of rental revenue from Established Communities
in conformity with GAAP to Rental Revenue with Concessions on a
Cash Basis is as follows (dollars in thousands):
TABLE 8
Q1
Q1
2020
2019
Rental revenue (GAAP basis)
$
547,514
$
531,304
Concessions amortized
517
823
Concessions granted
(1,088
)
(406
)
Rental Revenue with Concessions
on a Cash Basis
$
546,943
$
531,721
% change -- GAAP revenue
3.1
%
% change -- cash revenue
2.9
%
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, or
Development Right, including land acquisition costs, construction
costs, real estate taxes, capitalized interest and loan fees,
permits, professional fees, allocated development overhead and
other regulatory fees, offset by proceeds from the sale of any
associated land or improvements, all as determined in accordance
with GAAP. Total Capital Cost also includes costs incurred related
to first generation retail tenants, such as tenant improvements and
leasing commissions. For Redevelopment Communities, Total Capital
Cost excludes costs incurred prior to the start of redevelopment
when indicated. With respect to communities where development or
redevelopment was completed in a prior or the current period, Total
Capital Cost reflects the actual cost incurred, plus any
contingency estimate made by management. Total Capital Cost for
communities identified as having joint venture ownership, either
during construction or upon construction completion, represents the
total projected joint venture contribution amount. For joint
ventures not in construction, Total Capital Cost is equal to gross
real estate cost.
Unencumbered NOI as calculated by
the Company represents NOI generated by real estate assets
unencumbered by outstanding secured notes payable as of March 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 three months ended March 31, 2020 is as
follows (dollars in thousands):
TABLE 9
Q1 2020
NOI
NOI for Established Communities
$
391,645
NOI for Other Stabilized Communities
23,496
NOI for Development/Redevelopment
Communities (1)
9,394
NOI from real estate assets sold or held
for sale
896
Total NOI generated by real estate
assets
425,431
NOI on encumbered assets
28,412
NOI on unencumbered assets
$
397,019
Unencumbered NOI
93
%
(1) The Company had no Redevelopment
Communities as of March 31, 2020.
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Reserved
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Jason Reilley Vice President of Investor Relations
703-317-4681
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