AvalonBay Communities, Inc. (NYSE: AVB) (the “Company”) reported
today that Net Income Attributable to Common Stockholders for the
three months ended September 30, 2020 was $147,703,000. This
resulted in a decrease in Earnings per Share – diluted (“EPS”) for
the three months ended September 30, 2020 of 47.5% to $1.05 from
$2.00 for the prior year period, primarily attributable to a
decrease in gain on sale of real estate, an increase in
depreciation expense and other items as detailed in the table
below.
Funds from Operations attributable to common stockholders -
diluted (“FFO”) per share for the three months ended September 30,
2020 decreased 9.8% to $2.03 from $2.25 for the prior year period.
Core FFO per share (as defined in this release) for the three
months ended September 30, 2020 decreased 12.0% to $2.06 from $2.34
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 September 30, 2020 to its results for the prior year
period:
Q3 2020 Results Compared to Q3
2019
Per Share (1)
EPS
FFO
Core FFO
Q3 2019 per share reported results
$
2.00
$
2.25
$
2.34
Established Community NOI (2)
(0.27
)
(0.27
)
(0.27
)
Development and Other Stabilized Community
NOI
0.05
0.05
0.05
Capital markets and transaction
activity
(0.02
)
(0.02
)
(0.02
)
Joint venture income
(0.02
)
(0.02
)
(0.02
)
Overhead and other
(0.04
)
(0.04
)
(0.02
)
Income taxes
0.08
0.08
—
Gain on sale of real estate and
depreciation expense
(0.73
)
—
—
Q3 2020 per share reported results
$
1.05
$
2.03
$
2.06
(1) For additional detail on reconciling
items between EPS, FFO and Core FFO, see Definitions and
Reconciliations, table 3.
(2) Established Community uncollectible
residential and commercial lease revenue increased $0.09 over the
prior year period.
For the nine months ended September 30, 2020, EPS decreased
21.9% to $3.46 from $4.43 for the prior year period, FFO per share
decreased 4.1% to $6.52 from $6.80 for the prior year period, and
Core FFO per share decreased 3.5% to $6.67 from $6.91 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 nine months ended
September 30, 2020 to its results for the prior year period:
YTD 2020 Results
Comparison to YTD 2019
Per Share (1)
EPS
FFO
Core FFO
YTD 2019 per share reported results
$
4.43
$
6.80
$
6.91
Established Community NOI (2)
(0.29
)
(0.29
)
(0.29
)
Development and Other Stabilized Community
NOI
0.24
0.24
0.24
Capital markets and transaction
activity
(0.15
)
(0.19
)
(0.13
)
Joint venture income
(0.04
)
(0.04
)
(0.04
)
Overhead and other
(0.09
)
(0.09
)
(0.02
)
Income taxes
0.09
0.09
—
Gain on sale of real estate and
depreciation expense
(0.73
)
—
—
YTD 2020 per share reported results
$
3.46
$
6.52
$
6.67
(1) For additional detail on reconciling
items between EPS, FFO and Core FFO, see Definitions and
Reconciliations, table 3.
(2) Established Community uncollectible
residential and commercial lease revenue increased $0.20 over the
prior year period.
Established Communities Operating Results for the Three
Months Ended September 30, 2020 Compared to the Prior Year
Period
For Established Communities, total revenue decreased
$33,180,000, or 6.1%, to $508,558,000. Residential and commercial
uncollectible lease revenue contributed $12,474,000 of this
decrease, comprised of $11,225,000 for residential and $1,249,000
for commercial. Operating expenses for Established Communities
increased $5,532,000, or 3.5%, to $165,616,000. NOI for Established
Communities decreased $38,712,000, or 10.1%, to $342,942,000.
Rental revenue for Established Communities decreased 6.1%, as
detailed in the following table:
Established Communities Change
in Rental Revenue
Q3 2020 Compared to Q3
2019
Residential rental revenue
Lease rates
(0.1)
%
Concessions and other discounts
(0.9)
%
Economic occupancy
(2.7)
%
Other rental revenue
—
%
Uncollectible lease revenue
(2.1)
%
Total residential rental revenue
(5.8)
%
Commercial rental revenue (1)
(0.3)
%
Total Established Communities change in
rental revenue
(6.1)
%
(1) Consists primarily of the impact of
uncollectible commercial lease revenue.
The following table reflects the percentage changes in rental
revenue, operating expenses and NOI for Established Communities for
the three months ended September 30, 2020 compared to the three
months ended September 30, 2019:
Q3 2020 Compared to Q3
2019
Rental Revenue
(1)
Opex (2)
NOI
% of NOI (3)
New England
(4.7)
%
4.7
%
(9.5)
%
14.7
%
Metro NY/NJ
(6.2)
%
0.2
%
(9.0)
%
22.4
%
Mid-Atlantic
(5.4)
%
5.5
%
(10.0)
%
15.3
%
Pacific NW
(5.0)
%
8.1
%
(10.2)
%
6.4
%
No. California
(7.7)
%
4.3
%
(11.8)
%
19.8
%
So. California
(6.3)
%
2.9
%
(10.4)
%
19.7
%
Expansion Mkts
(3.3)
%
2.1
%
(7.5)
%
1.7
%
Total
(6.1)
%
3.5
%
(10.1)
%
100.0
%
(1) See full release for additional
detail.
(2) See full release for discussion of
variances.
(3) Represents % of total NOI for Q3 2020,
including amounts related to communities that have been sold or
that are classified as held for sale.
Established Communities Operating Results for the Nine Months
Ended September 30, 2020 Compared to the Prior Year Period
For Established Communities, total revenue decreased
$33,190,000, or 2.1%, to $1,572,701,000. Residential and commercial
uncollectible lease revenue contributed $27,655,000 of this
decrease, comprised of $22,845,000 for residential and $4,810,000
for commercial. Operating expenses for Established Communities
increased $8,681,000, or 1.9%, to $474,799,000. NOI for Established
Communities decreased $41,871,000, or 3.7%, to $1,097,902,000.
Rental revenue for Established Communities decreased 2.0%, as
detailed in the following table:
Established Communities Change
in Rental Revenue
YTD 2020 Compared to YTD
2019
Residential rental revenue
Lease rates
1.5
%
Concessions and other discounts
(0.4)
%
Economic occupancy
(1.2)
%
Other rental revenue
(0.2)
%
Uncollectible lease revenue
(1.4)
%
Total residential rental revenue
(1.7)
%
Commercial rental revenue (1)
(0.3)
%
Total Established Communities change in
rental revenue
(2.0)
%
(1) Consists primarily of the impact of
uncollectible commercial lease revenue.
The following table reflects the percentage changes in rental
revenue, operating expenses and NOI for Established Communities for
the nine months ended September 30, 2020 compared to the nine
months ended September 30, 2019:
YTD 2020 Compared to YTD
2019
Rental Revenue
(1)
Opex (2)
NOI
% of NOI (3)
New England
(0.3)
%
3.0
%
(2.0)
%
14.4
%
Metro NY/NJ
(3.2)
%
0.8
%
(5.0)
%
22.0
%
Mid-Atlantic
(1.4)
%
1.1
%
(2.5)
%
15.5
%
Pacific NW
(1.3)
%
6.0
%
(4.0)
%
6.3
%
No. California
(2.0)
%
2.1
%
(3.3)
%
20.2
%
So. California
(2.8)
%
1.7
%
(4.7)
%
19.8
%
Expansion Mkts
(1.0)
%
(0.1)
%
(1.7)
%
1.8
%
Total
(2.0)
%
1.9
%
(3.7)
%
100.0
%
(1) See full release for additional
detail.
(2) See full release for discussion of
variances.
(3) Represents % of total NOI for YTD
2020, including amounts related to communities that have been sold
or that are classified as held for sale.
COVID-19 Operational Update
Established Communities Collections Update
The following table provides an update for residential revenue
collections for Established Communities for the three months ended
September 30, 2020. Collected residential revenue represents the
portion of apartment base rent charged to residents and other
rentable items, including parking and storage rent, along with pet
and other fees in accordance with residential leases, that has been
collected ("Collected Residential Revenue"), and excludes
transactional and other fees.
Established Communities
Collections (1)
Collected Residential
Revenue
At quarter end (2)
At October 27, 2020
(3)(4)
Q2 2020
95.5
%
97.7
%
Q3 2020
95.2
%
96.1
%
(1) Excludes commercial revenue, which was
1.4% of the Company's 2019 Established Communities' total revenue.
The Company collected 56.5% and 66.5% of billed commercial revenue
for Q2 2020 as of June 30, 2020 and for Q3 2020 as of September 30,
2020, respectively.
(2) The Collected Residential Revenue
percentage as of June 30, 2020 for Q2 2020 and September 30, 2020
for Q3 2020, respectively.
(3) The percentage of Collected
Residential Revenue as of October 27, 2020.
(4) Collected Residential Revenue for
October 2020 as of October 27, 2020 was 92.4%, which is 94.7% of
the AVB Residential Benchmark.
For further discussion of collection rates and limitations on
use of this data, see Definitions and Reconciliations.
The ongoing impact from COVID-19 on the Company's consolidated
results of operations will be affected by the duration and severity
of the pandemic, and how quickly and to what extent normal economic
and operating conditions resume. Because those factors are beyond
the Company's control and knowledge, the adverse future 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 and
nine months ended September 30, 2020 and information through
October 28, 2020, may not be indicative of results for future
periods. Due to the uncertainty from the ongoing impact of
COVID-19, the Company had previously withdrawn and is not providing
full year 2020 guidance.
Development Activity
Consolidated Development Communities and Development Rights
During the three months ended September 30, 2020, the Company
completed the development of Avalon Public Market, located in
Emeryville, CA. Avalon Public Market contains 289 apartment homes
and was constructed for a Total Capital Cost of $175,000,000.
During the nine months ended September 30, 2020, the Company
completed the development of four communities containing an
aggregate of 1,051 apartment homes for an aggregate Total Capital
Cost of $392,000,000.
At September 30, 2020, the Company had 17 consolidated
Development Communities under construction that in the aggregate
are expected to contain 5,581 apartment homes and 64,000 square
feet of commercial space. Estimated Total Capital Cost at
completion for these Development Communities is $2,115,000,000. As
of September 30, 2020, the Company has an estimated remaining Total
Capital Cost of $551,000,000 to invest over the next several years
on the 17 Development Communities under construction and recently
completed Development Communities.
The projected Total Capital Cost of Development Rights at
September 30, 2020 decreased to $3.9 billion from $4.2 billion at
June 30, 2020.
Unconsolidated Development Communities
During the three months ended September 30, 2020, the Company,
through an unconsolidated joint venture in which it holds a 25.0%
interest, started the construction of AVA Arts District, located in
Los Angeles, CA. AVA Arts District is expected to contain 475
apartment homes and 56,000 square feet of commercial space and to
be developed for an estimated Total Capital Cost of $276,000,000 to
the venture, approximately 60% of which will be funded by a
variable rate construction loan. At September 30, 2020, the
Company's expected remaining equity investment in the venture for
the development of AVA Arts District was $12,800,000.
At September 30, 2020, including AVA Arts District, the Company
had two Unconsolidated Development Communities under construction
that in the aggregate are expected to contain 803 apartment homes
and 56,000 square feet of commercial space. Estimated Total Capital
Cost at completion for these Unconsolidated Development Communities
is $386,000,000, with an estimated remaining equity investment of
the Company of $48,600,000 after expected loan proceeds as of
September 30, 2020. See the full release for further
discussion.
Disposition Activity
Consolidated Apartment Communities
During the three months ended September 30, 2020, the Company
sold Avalon Towers, a wholly-owned operating community, located in
Long Beach, NY. Avalon Towers contains 109 apartment homes and was
sold for $54,000,000, resulting in a gain in accordance with GAAP
of $31,603,000 and an Economic Gain of $13,577,000.
During the nine months ended September 30, 2020, the Company
sold three wholly-owned operating communities containing an
aggregate of 575 apartment homes. These assets were sold for
$183,650,000 and a weighted average Initial Market Cap Rate of
4.9%, resulting in a gain in accordance with GAAP of $91,313,000
and an Economic Gain of $50,232,000.
During the three and nine months ended September 30, 2020, the
Company sold seven and 59 of the 172 residential condominiums at
The Park Loggia, located in New York, NY, for gross proceeds of
$15,699,000 and $182,512,000, respectively. At September 30, 2020,
64% of the 67,000 square feet of commercial space has been leased.
In addition, subsequent to quarter end and through the date of this
release, the Company sold six residential condominiums for gross
proceeds of $23,246,000.
Unconsolidated Real Estate Investments
U.S. Fund
During the three months ended September 30, 2020, Multifamily
Partners AC LP (the "U.S. Fund"), a private discretionary real
estate investment vehicle in which the Company holds an equity
interest of 28.6%, sold Avalon at Venice on Rose containing 70
apartment homes and 9,000 square feet of commercial space, for a
sales price of $65,000,000.
Liquidity and Capital Markets
At September 30, 2020, the Company did not have any borrowings
outstanding under its $1,750,000,000 unsecured credit facility, and
had $182,400,000 in unrestricted cash and cash in escrow.
The Company’s annualized Net Debt-to-Core EBITDAre (as defined
in this release) for the third quarter of 2020 was 5.4 times and
Unencumbered NOI (as defined in this release) was 94%.
During the three months ended September 30, 2020, the Company
repaid $67,904,000 principal amount of 4.18% fixed rate debt
secured by Avalon Hoboken at par in advance of its December 2020
maturity date.
During the nine months ended September 30, 2020, in addition to
the debt repayment discussed above, the Company had the following
debt activity:
- In public offerings under its existing shelf registration
statement, the Company issued (i) $700,000,000 principal amount of
unsecured notes for net proceeds of $694,701,000, maturing in March
2030 and with a 2.30% coupon and an effective interest rate of
2.68%, including the impact of an interest rate hedge and offering
costs and (ii) $600,000,000 principal amount of unsecured notes for
net proceeds of $593,430,000, maturing in January 2031 with a 2.45%
coupon and an effective interest rate of 2.65%, including the
impact of an interest rate hedge and offering costs.
- The Company borrowed $51,000,000 under a mortgage note with a
maturity date of March 2027 and a contractual interest rate of
2.38%, in conjunction with the refinancing of $50,616,000 of
secured indebtedness that had a contractual interest rate of
3.08%.
- The Company repaid (i) $400,000,000 principal amount of its
3.625% unsecured notes in advance of the October 2020 scheduled
maturity and (ii) $250,000,000 principal amount of its 3.95%
unsecured notes in advance of the January 2021 scheduled maturity.
In conjunction with these repayments, the Company recognized a loss
on debt extinguishment of $9,170,000 composed of prepayment
penalties and the non-cash write-off of unamortized deferred
financing costs.
- The Company repaid $300,000,000 principal amount of its
variable rate unsecured notes at par in advance of the January 2021
scheduled maturity.
Stock Repurchase Program
In July 2020, the Company’s Board of Directors approved a new
stock repurchase program under which the Company may acquire shares
of its common stock in open market or negotiated transactions up to
an aggregate purchase price of $500,000,000. This authority may be
exercised from time to time in the Company’s discretion and in such
amounts as market conditions warrant. The timing and actual number
of shares repurchased will depend on a variety of factors including
price, corporate and regulatory requirements, market conditions and
other corporate liquidity requirements and priorities. The stock
repurchase program does not have an expiration date and may be
suspended or terminated at any time without prior notice. The
Company intends that funds used for the stock repurchase program
will be matched over time with the proceeds from sales of existing
apartment communities and in some cases with newly issued debt, but
initially may be funded from existing cash balances, retained cash
flow and/or the Company's line of credit.
Under this program, through the date of this release, the
Company repurchased 1,131,919 shares of common stock at an average
price of $150.11 per share. Of these amounts, 912,733 shares of
common stock at an average price of $150.58 per share were
repurchased during the three months ended September 30, 2020.
Other Matters
The Company will hold a conference call on October 29, 2020 at
1:00 PM ET to review and answer questions about this release, its
third quarter 2020 results, the Attachments (described below) and
related matters. To participate on the call, dial 888-204-4368 and
use conference id: 1933937.
To hear a replay of the call, which will be available from
October 29, 2020 at 6:00 PM ET to November 5, 2020 at 6:00 PM ET,
dial 888-203-1112 and use conference id: 1933937. 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 October 29, 2020.
About AvalonBay Communities, Inc.
As of September 30, 2020, the Company owned or held a direct or
indirect ownership interest in 294 apartment communities containing
86,676 apartment homes in 11 states and the District of Columbia,
of which 19 communities were under development and one community
was under redevelopment. The Company is an equity REIT in the
business of developing, redeveloping, acquiring and managing
apartment communities in leading metropolitan areas in New England,
the New York/New Jersey Metro area, the Mid-Atlantic, the Pacific
Northwest, and Northern and Southern California, as well as in the
Company's expansion markets consisting of Southeast Florida and
Denver, Colorado (the "Expansion Markets"). More information may be
found on the Company’s website at http://www.avalonbay.com. For additional
information, please contact Jason Reilley, Vice President of
Investor Relations, at 703-317-4681.
Forward-Looking Statements
This release, including its Attachments, contains
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking
statements, which you can identify by the Company’s use of words
such as “expects,” “plans,” “estimates,” “anticipates,” “projects,”
“intends,” “believes,” “outlook” and similar expressions that do
not relate to historical matters, are based on the Company’s
expectations, forecasts and assumptions at the time of this
release, which may not be realized and involve risks and
uncertainties that cannot be predicted accurately or that might not
be anticipated. These could cause actual results to differ
materially from those expressed or implied by the forward-looking
statements. Risks and uncertainties that might cause such
differences include those related to the COVID-19 pandemic, about
which there are many uncertainties, including (i) the duration and
severity of the pandemic 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, including the adoption of new rent control
regulations, and other economic or regulatory conditions may result
in lower than expected occupancy and/or rental rates and adversely
affect the profitability of our communities; delays in completing
development, redevelopment and/or lease-up may result in increased
financing and construction costs and may delay and/or reduce the
profitability of a community; debt and/or equity financing for
development, redevelopment or acquisitions of communities may not
be available or may not be available on favorable terms; we may be
unable to obtain, or experience delays in obtaining, necessary
governmental permits and authorizations; expenses may result in
communities that we develop or redevelop failing to achieve
expected profitability; our assumptions concerning risks relating
to our lack of control of joint ventures and our abilities to
successfully dispose of certain assets may not be realized; our
assumptions and expectations in our financial outlook may prove to
be too optimistic; and the timing and net proceeds of condominium
sales may not equal our current expectations. Additional
discussions of risks and uncertainties that could cause actual
results to differ materially from those expressed or implied by the
forward-looking statements (and which risks may also be heightened
because of the COVID-19 pandemic) appear in the Company’s filings
with the Securities and Exchange Commission, including the
Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2019 under the heading “Risk Factors” and under the
heading “Management’s Discussion and Analysis of Financial 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 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 http://www.avalonbay.com/earnings. This wire
distribution includes only the following definitions and
reconciliations.
AVB Residential Benchmark
represents the average monthly revenue collections as a percentage
of amounts billed for the referenced day of the month for the
period from April 2019 to March 2020.
Average Rental Rates are calculated
by the Company as rental revenue in accordance with GAAP, divided
by the weighted average number of occupied apartment homes.
Development Communities are
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
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 and nine months ended September 30, 2020 is as follows
(dollars in thousands):
TABLE 1
Q3 2020
YTD 2020
GAAP Gain
$
31,603
$
91,313
Accumulated Depreciation and Other
(18,026
)
(41,081
)
Economic Gain
$
13,577
$
50,232
Established Communities are
consolidated communities in the markets where the Company has a
significant presence, including the Company's Expansion Markets of
Southeast Florida and Denver, Colorado, and where a comparison of
operating results from the prior year to the current year is
meaningful, as these communities were owned and had Stabilized
Operations, as defined below, as of the beginning of the respective
prior year period. Therefore, for 2020 operating results,
Established Communities are consolidated communities that have
Stabilized Operations as of January 1, 2019, are not conducting or
are not probable to conduct substantial redevelopment activities
and are not held for sale or probable for disposition within the
current year.
Established Communities Collections
are the collection rates based on individual resident and
commercial tenant activity as reflected in the Company’s property
management systems, and are presented to provide information about
collections trends during the COVID-19 pandemic. Prior to the
COVID-19 pandemic, the collections information provided was not
routinely produced for internal use by senior management or
publicly disclosed by the Company, and is a result of analysis that
is not subject to internal controls over financial reporting. This
information is not prepared in accordance with GAAP, does not
reflect GAAP revenue or cash flow metrics, may be subject to
adjustment in preparing GAAP revenue and cash flow metrics at the
end of the three and nine months ended September 30, 2020.
Additionally, this information should not be interpreted as
predicting the Company’s financial performance, results of
operations or liquidity for any period.
EBITDA, EBITDAre and Core EBITDAre
are considered by management to be supplemental measures of our
financial performance. EBITDA is defined by the Company as net
income or loss attributable to the Company before interest income
and expense, income taxes, depreciation and amortization. EBITDAre
is calculated by the Company in accordance with the definition
adopted by the Board of Governors of the National Association of
Real Estate Investment Trusts (“NAREIT”), as EBITDA plus or minus
losses and gains on the disposition of depreciated property, plus
impairment write-downs of depreciated property, with adjustments to
reflect the Company's share of EBITDAre of unconsolidated entities.
Core EBITDAre is the Company’s EBITDAre as adjusted for non-core
items outlined in the table below. By further adjusting for items
that are not considered part of the Company’s core business
operations, Core EBITDAre can help one compare the core operating
and financial performance of the Company between periods. A
reconciliation of EBITDA, EBITDAre and Core EBITDAre to net income
is as follows (dollars in thousands):
TABLE 2
Q3
2020
Net income
$
147,717
Interest expense, net, inclusive of loss
on extinguishment of debt, net
53,144
Income tax benefit
(27)
Depreciation expense
175,348
EBITDA
$
376,182
Gain on sale of communities
(31,607)
Joint venture EBITDAre adjustments (1)
(1,773)
EBITDAre
$
342,802
Gain on other real estate transactions
(129)
Business interruption insurance
proceeds
(282)
Advocacy contributions
1,308
Severance related costs
75
Development pursuit write-offs and
expensed transaction costs, net
147
Gain on for-sale condominiums
(727)
For-sale condominium marketing and
administrative costs
1,373
Asset management fee intangible
write-off
82
Legal settlements
59
Core EBITDAre
$
344,708
(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 by us to be part of our core business
operations, Core FFO can help one compare the core operating and
financial performance of the Company between periods. A
reconciliation of Net income attributable to common stockholders to
FFO and to Core FFO is as follows (dollars in thousands):
TABLE 3
Q3
Q3
YTD
YTD
2020
2019
2020
2019
Net income attributable to common
stockholders
$
147,703
$
279,677
$
486,502
$
618,324
Depreciation - real estate assets,
including joint venture adjustments
174,505
165,673
527,491
495,249
Distributions to noncontrolling
interests
12
11
36
34
Gain on sale of unconsolidated entities
holding previously depreciated real estate
(5,157)
—
(5,157)
—
Gain on sale of previously depreciated
real estate
(31,607)
(130,484)
(91,338)
(165,849)
FFO attributable to common
stockholders
285,456
314,877
917,534
947,758
Adjusting items:
Joint venture losses
86
—
86
—
Business interruption insurance
proceeds
(282)
(307)
(385)
(914)
Lost NOI from casualty losses covered by
business interruption insurance
—
410
48
410
(Gain) loss on extinguishment of
consolidated debt
(105)
93
9,333
602
Advocacy contributions
1,308
—
3,074
—
Severance related costs
75
895
2,115
2,267
Development pursuit write-offs and
expensed transaction costs, net
147
85
3,536
1,689
Gain on for-sale condominiums (1)(2)
(727)
—
(8,174)
—
For-sale condominium marketing and
administrative costs (2)
1,373
1,108
4,012
2,526
For-sale condominium imputed carry cost
(3)
2,580
1,724
9,013
2,230
Gain on other real estate transactions
(129)
(73)
(328)
(374)
Legal settlements (4)
59
(3,093)
35
(4,071)
Income tax (benefit) expense (5)
(27)
11,184
(1,069)
11,178
Core FFO attributable to common
stockholders
$
289,814
$
326,903
$
938,830
$
963,301
Average shares outstanding - diluted
140,603,722
139,852,674
140,702,803
139,438,064
Earnings per share - diluted
$
1.05
$
2.00
$
3.46
$
4.43
FFO per common share - diluted
$
2.03
$
2.25
$
6.52
$
6.80
Core FFO per common share - diluted
$
2.06
$
2.34
$
6.67
$
6.91
(1) Amount for the three and nine months
ended September 30, 2020 includes the sale of seven and 59
residential condominiums at The Park Loggia, respectively.
(2) Aggregate impact of (i) Gains on
for-sale condominiums and (ii) For-sale condominium marketing and
administrative costs, is a net loss of $646 for Q3 2020 and a net
gain of $4,162 for YTD 2020, and a loss of $1,108 and $2,526 for Q3
and YTD 2019, respectively.
(3) Represents the imputed carry cost of
the for-sale residential condominiums at The Park Loggia. The
Company computes this adjustment by multiplying the Total Capital
Cost of completed and unsold for-sale residential condominiums by
the Company's weighted average unsecured debt effective interest
rate.
(4) Amounts for 2019 include $3,126 in
legal settlement proceeds related to a former Development
Right.
(5) Amounts for 2019 consist of $6,645
related to GAAP to tax basis differences at The Park Loggia
development and $4,539 related to the other activity the Company
undertook through taxable REIT subsidiaries ("TRS"), including the
disposition of two wholly-owned operating communities and expense
for deferred tax obligations related to the Company's
sustainability initiatives.
Initial Year Market Cap Rate is
defined by the Company as Projected NOI of a single community for
the first 12 months of operations (assuming no repositioning), less
estimates for non-routine allowance of approximately $300 - $500
per apartment home, divided by the gross sales price for the
community. Projected NOI, as referred to above, represents
management’s estimate of projected rental revenue minus projected
operating expenses before interest, income taxes (if any),
depreciation and amortization. For this purpose, management’s
projection of operating expenses for the community includes a
management fee of 2.25%. The Initial Year Market Cap Rate, which
may be determined in a different manner by others, is a measure
frequently used in the real estate industry when determining the
appropriate purchase price for a property or estimating the value
for a property. Buyers may assign different Initial Year Market Cap
Rates to different communities when determining the appropriate
value because they (i) may project different rates of change in
operating expenses and capital expenditure estimates and (ii) may
project different rates of change in future rental revenue due to
different estimates for changes in rent and occupancy levels. The
weighted average Initial Year Market Cap Rate is weighted based on
the gross sales price of each community.
Interest Coverage is calculated by
the Company as Core EBITDAre, divided by the sum of interest
expense, net, and preferred dividends, if applicable. Interest
Coverage is presented by the Company because it provides rating
agencies and investors an additional means of comparing our ability
to service debt obligations to that of other companies. A
calculation of Interest Coverage for the three months ended
September 30, 2020 is as follows (dollars in thousands):
TABLE 4
Core EBITDAre
$
344,708
Interest expense, net
$
53,249
Interest Coverage
6.5 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 third
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)
$
7,631,099
Cash and cash in escrow
(182,400
)
Net debt
$
7,448,699
Core EBITDAre
$
344,708
Core EBITDAre, annualized
$
1,378,832
Net Debt-to-Core EBITDAre
5.4 times
(1) Balance at September 30, 2020 excludes
$10,782 of debt discount and $38,968 of deferred financing costs as
reflected in unsecured notes, net, and $14,636 of debt discount and
$3,067 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, gain
on for-sale condominiums, net of 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
Q3
Q3
Q2
Q1
YTD
YTD
2020
2019
2020
2020
2020
2019
Net income
$
147,717
$
279,709
$
170,869
$
168,006
$
486,592
$
618,432
Indirect operating expenses, net of
corporate income
23,837
20,195
23,407
22,799
70,043
62,935
Expensed transaction, development and
other pursuit costs, net of recoveries
567
175
388
3,334
4,289
2,562
Interest expense, net
53,249
51,493
53,399
55,914
162,562
149,395
(Gain) loss on extinguishment of debt,
net
(105)
93
268
9,170
9,333
602
General and administrative expense
13,985
12,769
15,573
17,320
46,878
45,440
Joint venture income
(5,083)
(1,643)
(512)
(1,175)
(6,770)
(780)
Depreciation expense
175,348
165,463
176,249
177,911
529,508
490,213
Income tax (benefit) expense
(27)
11,184
(1,133)
91
(1,069)
11,178
Gain on sale of communities
(31,607)
(130,484)
(35,295)
(24,436)
(91,338)
(165,849)
Gain on other real estate transactions
(129)
(73)
(156)
(43)
(328)
(374)
Gain on for-sale condominiums, net of
marketing and administrative costs
646
1,108
(1,348)
(3,460)
(4,162)
2,526
NOI from real estate assets sold or held
for sale
(720)
(3,404)
(1,133)
(1,719)
(3,572)
(16,161)
NOI
$
377,678
$
406,585
$
400,576
$
423,712
$
1,201,966
$
1,200,119
Established:
New England
$
49,089
$
54,244
$
52,835
$
53,680
$
155,604
$
158,801
Metro NY/NJ
75,193
82,602
77,284
83,661
236,138
248,530
Mid-Atlantic
56,190
62,430
60,041
64,655
180,886
185,431
Pacific NW
18,578
20,684
19,626
20,838
59,042
61,498
No. California
69,752
79,076
77,844
80,451
228,047
235,884
So. California
71,125
79,357
74,601
82,455
228,181
239,452
Expansion Markets
3,015
3,261
3,561
3,428
10,004
10,177
Total Established
342,942
381,654
365,792
389,168
1,097,902
1,139,773
Other Stabilized
22,834
20,125
23,108
23,496
69,438
52,091
Development/Redevelopment
11,902
4,806
11,676
11,048
34,626
8,255
NOI
$
377,678
$
406,585
$
400,576
$
423,712
$
1,201,966
$
1,200,119
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
Q3
Q3
Q2
Q1
Q4
YTD
YTD
2020
2019
2020
2020
2019
2020
2019
Revenue from real estate assets sold or
held for sale
$
1,449
$
6,094
$
1,933
$
2,777
$
4,063
$
6,159
$
28,116
Operating expenses from real estate assets
sold or held for sale
(729)
(2,690)
(800)
(1,058)
(1,438)
(2,587)
(11,955)
NOI from real estate assets sold or held
for sale
$
720
$
3,404
$
1,133
$
1,719
$
2,625
$
3,572
$
16,161
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. Redevelopment
Communities include one community containing 344 apartment homes
that are currently under active redevelopment as of September 30,
2020.
Rental Revenue with Residential
Concessions on a Cash Basis is considered by the Company to
be a supplemental measure to rental revenue in conformity with GAAP
to help investors evaluate the impact of both current and
historical residential concessions on GAAP-based rental revenue and
to more readily enable comparisons to revenue as reported by other
companies. In addition, Rental Revenue with Residential Concessions
on a Cash Basis allows an investor to understand the historical
trend in residential cash concessions.
A reconciliation of rental revenue from Established Communities
in conformity with GAAP to Rental Revenue with Residential
Concessions on a Cash Basis is as follows (dollars in
thousands):
TABLE 8
Q3
Q3
YTD
YTD
2020
2019
2020
2019
Rental revenue (GAAP basis)
$
508,163
$
540,942
$
1,571,325
$
1,603,729
Residential concessions amortized
5,712
447
8,095
1,815
Residential concessions granted
(15,456
)
(508
)
(27,530
)
(1,084
)
Rental Revenue with Residential
Concessions
on a Cash Basis
$
498,419
$
540,881
$
1,551,890
$
1,604,460
% change -- GAAP revenue
(6.1
)
%
(2.0
)
%
% change -- cash revenue
(7.9
)
%
(3.3
)
%
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 commercial tenants, such as tenant improvements
and leasing commissions. For Redevelopment Communities, Total
Capital Cost excludes costs incurred prior to the start of
redevelopment when indicated. With respect to communities where
development or redevelopment was completed in a prior or the
current period, Total Capital Cost reflects the actual cost
incurred, plus any contingency estimate made by management. Total
Capital Cost for communities identified as having joint venture
ownership, either during construction or upon construction
completion, represents the total projected joint venture
contribution amount. For joint ventures not in construction, Total
Capital Cost is equal to gross real estate cost.
Unconsolidated Development
Communities are communities that are either currently under
construction, or were under construction and were completed during
the current year, in which we have an indirect ownership interest
through our investment interest in an unconsolidated joint venture.
These communities may be partially or fully complete and
operating.
Unencumbered NOI as calculated by
the Company represents NOI generated by real estate assets
unencumbered by outstanding secured notes payable as of September
30, 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 nine months ended September 30, 2020 is
as follows (dollars in thousands):
TABLE 9
Year to Date
NOI
NOI for Established Communities
$
1,097,902
NOI for Other Stabilized Communities
69,438
NOI for Development/Redevelopment
Communities
34,626
NOI from real estate assets sold or held
for sale
3,572
Total NOI generated by real estate
assets
1,205,538
NOI on encumbered assets
73,711
NOI on unencumbered assets
$
1,131,827
Unencumbered NOI
94
%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201028006138/en/
Jason Reilley, Vice President of Investor Relations,
703-317-4681
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