AvalonBay Communities, Inc. (NYSE: AVB) (the “Company”) reported
today that Net Income Attributable to Common Stockholders for the
three months ended September 30, 2021 was $78,914,000. This
resulted in a decrease in Earnings per Share – diluted (“EPS”) for
the three months ended September 30, 2021 of 46.7% to $0.56 from
$1.05 for the prior year period, primarily attributable to a
decrease in gain on sale of real estate, as detailed in the table
below.
Funds from Operations attributable to common stockholders -
diluted (“FFO”) per share for the three months ended September 30,
2021 decreased 3.4% to $1.96 from $2.03 for the prior year period.
Core FFO per share (as defined in this release) for the three
months ended September 30, 2021 remained unchanged from the prior
year period at $2.06.
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, 2021 to its results for the prior year
period:
Q3 2021 Results Compared to Q3
2020
Per Share (1)
EPS
FFO
Core FFO
Q3 2020 per share reported results
$
1.05
$
2.03
$
2.06
Same Store Residential NOI (2)
—
—
—
Development and Other Stabilized
Residential NOI
0.11
0.11
0.11
Commercial NOI
0.02
0.02
0.02
Overhead and other
(0.03)
(0.03)
(0.04)
Capital markets and transaction
activity
(0.20)
(0.19)
(0.09)
Unconsolidated investment income
0.04
0.04
—
Income taxes
(0.02)
(0.02)
—
Gain on sale of real estate and
depreciation expense
(0.41)
—
—
Q3 2021 per share reported results
$
0.56
$
1.96
$
2.06
(1) For additional detail on reconciling
items between EPS, FFO and Core FFO, see Definitions and
Reconciliations, table 3.
(2) Consists of a $0.04 increase in both
revenue and operating expenses.
The following table compares the Company’s actual results for
EPS, FFO per share and Core FFO per share for three months ended
September 30, 2021 to its July 2021 outlook:
Q3 2021 Results Compared to
July 2021 Outlook
Per Share
EPS
FFO
Core FFO
Projected per share - July 2021 outlook
(1)
$
0.53
$
1.86
$
1.96
Same Store Residential revenue
0.07
0.07
0.07
Development and Other Stabilized
Residential NOI
0.01
0.01
0.01
Commercial NOI
0.01
0.01
0.01
Capital markets and transaction
activity
0.01
0.01
—
Unconsolidated investment income and
other
0.01
0.01
0.01
Income taxes
(0.01)
(0.01)
—
Gain on sale of real estate and
depreciation expense
(0.07)
—
—
Q3 2021 per share reported results
$
0.56
$
1.96
$
2.06
(1) The mid-point of the Company's July
2021 outlook.
For the nine months ended September 30, 2021, EPS increased
38.4% to $4.79 from $3.46 for the prior year period, FFO per share
decreased 10.1% to $5.86 from $6.52 for the prior year period, and
Core FFO per share decreased 10.2% to $5.99 from $6.67 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, 2021 to its results for the prior year period:
YTD 2021 Results Compared to
YTD 2020
Per Share (1)
EPS
FFO
Core FFO
YTD 2020 per share reported results
$
3.46
$
6.52
$
6.67
Same Store Residential NOI (2)
(0.63)
(0.63)
(0.63)
Development and Other Stabilized
Residential NOI
0.22
0.22
0.22
Commercial NOI
0.03
0.03
0.03
Overhead and other
(0.05)
(0.05)
(0.08)
Capital markets and transaction
activity
(0.26)
(0.25)
(0.20)
Unconsolidated investment income
0.04
0.04
(0.02)
Income taxes
(0.02)
(0.02)
—
Gain on sale of real estate and
depreciation expense
2.00
—
—
YTD 2021 per share reported results
$
4.79
$
5.86
$
5.99
(1) For additional detail on reconciling
items between EPS, FFO and Core FFO, see Definitions and
Reconciliations, table 3.
(2) Consists of a $0.49 decrease in
revenue and $0.14 increase in operating expenses.
Same Store Operating Results for the Three Months Ended
September 30, 2021 Compared to the Prior Year Period
Same Store total revenue increased $6,379,000, or 1.2%, to
$519,797,000. Residential revenue increased $4,849,000, or 1.0%, to
$514,183,000, which includes a favorable reduction of uncollectible
lease revenue of $7,369,000.
Same Store Residential rental revenue increased 1.0%, as
detailed in the following table:
Same Store Residential Rental
Revenue Change
Q3 2021 Compared to Q3
2020
Residential rental revenue
Lease rates
(1.8)
%
Concessions and other discounts
(1.8)
%
Economic occupancy
3.2
%
Other rental revenue
—
%
Uncollectible lease revenue (1)
1.4
%
Total Residential rental revenue
1.0
%
(1) Uncollectible lease revenue decreased
to 1.37% from 2.77% of total Residential rental revenue in the
prior year period.
Same Store Residential operating expenses increased $5,772,000,
or 3.5%, to $171,287,000 and Same Store Residential NOI decreased
$923,000, or 0.3%, to $342,896,000.
The following table presents percentage changes in Same Store
Residential rental revenue, Residential operating expenses and
Residential NOI for the three months ended September 30, 2021
compared to the three months ended September 30, 2020:
Q3 2021 Compared to Q3
2020
Residential
Rental Revenue
(1)
Opex
(2)
% of
NOI
Rental Revenue cash basis
(3)
NOI
New England
2.0
%
6.7
%
(0.6)
%
14.0
%
4.4
%
Metro NY/NJ
2.5
%
5.7
%
0.6
%
20.9
%
5.5
%
Mid-Atlantic
0.2
%
3.4
%
(1.3)
%
16.1
%
2.0
%
Southeast FL
17.4
%
(13.7)
%
51.3
%
1.5
%
20.8
%
Denver, CO
11.9
%
2.7
%
17.4
%
1.2
%
11.7
%
Pacific NW
(0.9)
%
3.0
%
(2.8)
%
5.2
%
2.6
%
No. California
(7.8)
%
1.6
%
(11.3)
%
18.2
%
(0.8)
%
So. California
6.2
%
2.3
%
8.1
%
22.9
%
8.6
%
Total
1.0
%
3.5
%
(0.3)
%
100.0
%
4.3
%
(1) See full release for additional
detail.
(2) See full release for discussion of
variances.
(3) The change in Residential Rental
Revenue with Concessions on a Cash Basis.
Same Store Operating Results for the Nine Months Ended
September 30, 2021 Compared to the Prior Year Period
Same Store total revenue decreased $65,985,000, or 4.2%, to
$1,520,420,000. Residential revenue decreased $69,389,000, or 4.4%,
to $1,505,357,000, with uncollectible lease revenue contributing
$4,245,000 of this decrease. Same Store Residential rental revenue
decreased 4.4%, as detailed in the following table:
Same Store Residential Rental
Revenue Change
YTD 2021 Compared to YTD
2020
Residential rental revenue
Lease rates
(3.2)
%
Concessions and other discounts
(2.3)
%
Economic occupancy
1.3
%
Other rental revenue
0.1
%
Uncollectible lease revenue (1)
(0.3)
%
Total Residential rental revenue
(4.4)
%
(1) Uncollectible lease revenue increased
to 2.36% from 2.00% of total Residential rental revenue in the
prior year period.
Same Store Residential operating expenses increased $19,808,000,
or 4.2%, to $495,002,000 and Same Store Residential NOI decreased
$89,197,000, or 8.1%, to $1,010,355,000.
The following table presents percentage changes in Same Store
Residential rental revenue, Residential operating expenses and
Residential NOI for the nine months ended September 30, 2021
compared to the nine months ended September 30, 2020:
YTD 2021 Compared to YTD
2020
Residential
Rental Revenue (1)
Opex
(2)
% of
NOI
Rental Revenue cash basis
(3)
NOI
New England
(3.1)
%
4.4
%
(6.9)
%
14.0
%
(2.5)
%
Metro NY/NJ
(2.4)
%
4.0
%
(5.4)
%
21.0
%
(1.4)
%
Mid-Atlantic
(3.8)
%
5.7
%
(7.9)
%
16.5
%
(2.8)
%
Southeast FL
5.9
%
(7.3)
%
17.2
%
1.4
%
8.4
%
Denver, CO
11.5
%
(1.1)
%
18.7
%
1.2
%
11.8
%
Pacific NW
(4.9)
%
5.7
%
(9.5)
%
5.2
%
(3.1)
%
No. California
(12.4)
%
4.5
%
(18.0)
%
18.7
%
(9.0)
%
So. California
(1.6)
%
3.8
%
(4.0)
%
22.0
%
0.5
%
Total
(4.4)
%
4.2
%
(8.1)
%
100.0
%
(2.7)
%
(1) See full release for additional
detail.
(2) See full release for discussion of
variances.
(3) The change in Residential Rental
Revenue with Concessions on a Cash Basis.
Same Store Collections Update
The following table provides an update for Same Store
Residential revenue collections for Q2 2020 through Q3 2021 as of
each respective quarter end, as well as through October 26, 2021
for the periods presented. Collected Residential revenue is the
portion of apartment base rent charged to residents and other
rentable items, such as parking and storage rent, along with pet
and other fees in accordance with residential leases, that has been
collected, including $14,128,000 of aggregate rent relief payments,
of which $11,235,000 was received during the three months ended
September 30, 2021 ("Collected Residential Revenue"), and excludes
transactional and other fees.
Same Store Collections
(1)
Collected Residential
Revenue
At quarter end (2)
At October 26, 2021
(3)(4)
Q2 2020
95.4%
98.4%
Q3 2020
95.1%
98.0%
Q4 2020
94.7%
97.8%
Q1 2021
94.7%
97.7%
Q2 2021
95.0%
97.9%
Q3 2021
95.8%
97.1%
(1) Collections are for the Company’s 2021
Same Store communities and exclude commercial revenue, which was
0.5% and 1.0% of the Company's 2020 and 2019 Same Store total
revenue, respectively.
(2) The Collected Residential Revenue
percentage as of the last day in the respective quarter.
(3) The percentage of Collected
Residential Revenue as of October 26, 2021.
(4) Collected Residential Revenue for
October 2021 at October 26, 2021 was 92.9%, which is 95.3% of the
AVB Residential Benchmark.
For further discussion of collection rates and limitations on
use of this data, see "Same Store Collections," in Definitions and
Reconciliations.
Development Activity
During the three months ended September 30, 2021, the Company
completed the development of Avalon Monrovia, located in Monrovia,
CA. Avalon Monrovia contains 154 apartment homes and 3,000 square
feet of commercial space and was constructed for a Total Capital
Cost of $69,000,000.
During the three months ended September 30, 2021, the Company
started the construction of two communities:
- Avalon Westminster Promenade, located in Denver, CO; and
- Avalon West Dublin, located in Dublin, CA.
In the aggregate, these communities will contain 811 apartment
homes when completed and will be developed for an estimated Total
Capital Cost of $377,000,000.
During the nine months ended September 30, 2021, the Company
completed the development of eight communities containing an
aggregate of 2,708 apartment homes and 29,000 square feet of
commercial space for an aggregate Total Capital Cost of
$1,055,000,000, and started the construction of seven
communities.
At September 30, 2021, the Company had 15 consolidated
Development communities under construction that are expected to
contain 4,645 apartment homes and 40,000 square feet of commercial
space. Estimated Total Capital Cost at completion for these
Development communities is $1,863,000,000.
At September 30, 2021, 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.
Acquisition Activity
During the three months ended September 30, 2021, the Company
acquired the following communities, marking the Company's entry
into the Dallas, Texas and Charlotte, North Carolina metropolitan
regions:
- The Nexus Lakeside, located in Flower Mound, TX, containing 425
apartment homes and 18,000 square feet of commercial space, for a
purchase price of $117,000,000;
- Hub South End, located in Charlotte, NC, containing 265
apartment homes and 23,000 square feet of commercial space, for a
purchase price of $104,350,000; and
- Three30Five, located in Charlotte, NC, containing 164 apartment
homes, for a purchase price of $52,650,000.
During the nine months ended September 30, 2021, the Company
acquired four wholly-owned communities containing 1,238 apartment
homes and 41,000 square feet of commercial space for a purchase
price of $393,000,000.
In October 2021, the Company acquired Curv, a wholly-owned
operating community, located in Fort Lauderdale, FL, containing 243
apartment homes and 49,000 square feet of commercial space that is
100% leased to Whole Foods Market, for a purchase price of
$150,000,000.
Disposition Activity
During the nine months ended September 30, 2021, the Company
sold seven wholly-owned operating communities containing 1,547
apartment homes and 10,000 square feet of commercial space. These
assets were sold for $584,200,000 and a weighted average Initial
Market Cap Rate of 3.9%, resulting in a gain in accordance with
GAAP of $388,347,000 and an Economic Gain of $206,976,000.
During the three and nine months ended September 30, 2021, the
Company sold 17 and 43, respectively, of the 172 residential
condominiums at The Park Loggia, located in New York, NY, for gross
proceeds of $54,277,000 and $107,278,000, respectively. As of
September 30, 2021, 113 of the 172 residential condominiums have
been sold for aggregate gross proceeds of $323,650,000 and 87% of
the 66,000 square feet of commercial space has been leased.
Liquidity and Capital Markets
At September 30, 2021, the Company did not have any borrowings
outstanding under its $1,750,000,000 unsecured credit facility and
had $435,850,000 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 2021 was 5.4 times and
Unencumbered NOI (as defined in this release) was 94%.
During the three months ended September 30, 2021, the Company
had the following debt activity:
- The Company repaid $450,000,000 principal amount of its 2.95%
unsecured notes in advance of the September 2022 maturity date,
recognizing a loss on debt extinguishment of $17,890,000, composed
of a prepayment penalty of $12,147,000 and the non-cash write-off
of unamortized deferred hedging losses and unamortized deferred
financing costs of $5,743,000.
- 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 $694,617,000. The notes mature in
January 2032 and were issued with a 2.05% coupon. The effective
interest rate of the notes is 2.15%, including the impact of
interest rate hedges and offering costs. The notes were issued
under the Company's green bond framework, and the Company has
allocated or will allocate the net proceeds, in whole or in part,
to one or more new or existing eligible green projects.
During the nine months ended September 30, 2021, in addition to
the debt activity discussed above, the Company repaid $27,795,000
principal amount of 5.37% fixed rate debt secured by Avalon San
Bruno II at par in advance of its April 2021 maturity date.
During the three months ended September 30, 2021, the Company
sold 21,000 shares of common stock under its current continuous
equity program, at an average sales price of $227.60 per share, for
net proceeds of $4,708,000. In October 2021, through the date of
this release, the Company sold an additional 101,343 shares of
common stock at an average sales price of $225.85 per share, for
net proceeds of $22,545,000.
Fourth Quarter and Full Year 2021 Financial Outlook
For its fourth quarter and full year 2021 financial outlook, the
Company expects the following:
Projected EPS, Projected FFO and
Projected Core FFO Outlook (1)
Q4 2021
Full Year 2021
Low
High
Low
High
Projected EPS
$
2.25
—
$
2.35
$
7.04
—
$
7.14
Projected FFO per share
$
2.17
—
$
2.27
$
8.03
—
$
8.13
Projected Core FFO per share
$
2.19
—
$
2.29
$
8.18
—
$
8.28
(1) See Definitions and Reconciliations,
table 9, for reconciliations of Projected FFO per share and
Projected Core FFO per share to Projected EPS.
Fourth Quarter and Full Year
Financial Outlook
Q4 2021
Full Year 2021
vs. Q4 2020
vs. Full Year 2020
Low
High
Low
High
Same Store:
Residential rental revenue change
4.5%
—
5.5%
(2.3)%
—
(1.9)%
Residential Opex change
1.25%
—
2.25%
3.4%
—
3.8%
Residential NOI change
5.5%
—
7.5%
(5.1)%
—
(4.3)%
The following table compares the Company’s actual results for
EPS, FFO per share and Core FFO per share for the third quarter of
2021 to its fourth quarter 2021 financial outlook:
Q3 2021 Results Compared to
Fourth Quarter 2021 Outlook
Per Share
EPS
FFO
Core FFO
Q3 2021 per share reported results
$
0.56
$
1.96
$
2.06
Same Store Residential revenue
0.08
0.08
0.08
Same Store Residential Opex
0.06
0.06
0.06
Development and Other Stabilized
Residential NOI
0.03
0.03
0.03
Capital markets and transaction
activity
0.14
0.14
0.01
Overhead and other
(0.05)
(0.05)
—
Gain on sale of real estate and
depreciation expense
1.48
—
—
Projected per share - fourth quarter 2021
outlook (1)
$
2.30
$
2.22
$
2.24
(1) The mid-point of the Company's fourth
quarter 2021 outlook.
Other Matters
The Company will hold a conference call on October 28, 2021 at
1:00 PM ET to review and answer questions about this release, its
third quarter 2021 results, the Attachments (described below) and
related matters. To participate on the call, dial 888-394-8218 and
use conference id: 3331173.
To hear a replay of the call, which will be available from
October 28, 2021 at 6:00 PM ET to November 4, 2021 at 6:00 PM ET,
dial 888-203-1112 and use conference id: 3331173. A webcast of the
conference call will also be available at http://www.avalonbay.com/earnings, and an online
playback of the webcast will be available for at least seven days
following the call.
The Company produces Earnings Release Attachments (the
"Attachments") that provide detailed information regarding
operating, development, redevelopment, disposition and acquisition
activity. These Attachments are considered a part of this earnings
release and are available in full with this earnings release via
the Company's website at 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 28, 2021.
About AvalonBay Communities, Inc.
As of September 30, 2021, the Company owned or held a direct or
indirect ownership interest in 293 apartment communities containing
87,416 apartment homes in 13 states and the District of Columbia,
of which 17 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 of Raleigh-Durham and Charlotte, North
Carolina, Southeast Florida, Dallas and Austin, Texas, and Denver,
Colorado. More information may be found on the Company’s website at
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,
including 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 and federal efforts at economic
stimulus; 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 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, 2020 under the heading “Risk Factors” and
under the heading “Management’s Discussion and Analysis of
Financial Condition and Results of Operations - Forward-Looking
Statements” and in subsequent quarterly reports on Form 10-Q.
The Company does not undertake a duty to update forward-looking
statements, including its expected 2021 operating results and other
financial data forecasts contained in this release. The Company
may, in its discretion, provide information in future public
announcements regarding its outlook that may be of interest to the
investment community. The format and extent of future outlooks may
be different from the format and extent of the information
contained in this release.
Definitions and Reconciliations
Non-GAAP financial measures and other capitalized terms, as used
in this earnings release, are defined, reconciled and further
explained on Attachment 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.
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 Residential rental revenue in accordance with
GAAP, divided by the weighted average number of occupied apartment
homes.
Commercial represents results
attributable to the non-apartment components of the Company's
mixed-use communities and other non-residential operations.
Development is composed of
consolidated communities that are either currently under
construction, or were under construction and were completed during
the current year. These communities may be partially or fully
complete and operating.
Economic Occupancy (“Ec Occ”) is
defined as total possible Residential revenue less vacancy loss as
a percentage of total possible Residential revenue. Total possible
Residential revenue (also known as “gross potential”) is determined
by valuing occupied units at contract rates and vacant units at
Market Rents. Vacancy loss is determined by valuing vacant units at
current Market Rents. By measuring vacant apartments at their
Market Rents, Economic Occupancy takes into account the fact that
apartment homes of different sizes and locations within a community
have different economic impacts on a community’s gross revenue.
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
nine months ended September 30, 2021 is as follows (dollars in
thousands):
TABLE 1
YTD 2021
GAAP Gain
$
388,347
Accumulated Depreciation and Other
(181,371)
Economic Gain
$
206,976
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 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
2021
Net income
$
78,847
Interest expense and loss on
extinguishment of debt
73,811
Income tax expense
2,179
Depreciation expense
193,791
EBITDA
$
348,628
Gain on sale of communities
(58)
Unconsolidated entity EBITDAre adjustments
(1)
2,969
EBITDAre
$
351,539
Unconsolidated entity gains, net
(6,924)
Casualty and impairment loss
1,940
Executive transition compensation
costs
411
Severance related costs
284
Development pursuit write-offs and
expensed transaction costs, net of recoveries
273
Gain on for-sale condominiums
(1,345)
For-sale condominium marketing, operating
and administrative costs
1,187
Gain on other real estate transactions,
net
(1,543)
Legal settlements
22
Core EBITDAre
$
345,844
(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
2021
2020
2021
2020
Net income attributable to common
stockholders
$
78,914
$
147,703
$
669,090
$
486,502
Depreciation - real estate assets,
including joint venture adjustments
192,435
174,505
558,006
527,491
Distributions to noncontrolling
interests
12
12
36
36
Gain on sale of unconsolidated entities
holding previously depreciated real estate
—
(5,157)
(23,305)
(5,157)
Gain on sale of previously depreciated
real estate
(58)
(31,607)
(388,354)
(91,338)
Casualty and impairment loss on real
estate
1,940
—
3,117
—
FFO attributable to common
stockholders
273,243
285,456
818,590
917,534
Adjusting items:
Unconsolidated entity (gains) losses, net
(1)
(6,924)
86
(9,056)
86
Business interruption insurance
proceeds
—
(282)
—
(385)
Lost NOI from casualty losses covered by
business interruption insurance
—
—
48
Loss (gain) on extinguishment of
consolidated debt
17,890
(105)
17,768
9,333
Gain on interest rate contract
—
—
(2,654)
—
Advocacy contributions
—
1,308
—
3,074
Executive transition compensation
costs
411
—
2,599
—
Severance related costs
284
75
386
2,115
Development pursuit write-offs and
expensed transaction costs, net of recoveries
273
147
575
3,536
Gain on for-sale condominiums (2)
(1,345)
(727)
(2,051)
(8,174)
For-sale condominium marketing, operating
and administrative costs (2)
1,187
1,373
3,453
4,012
For-sale condominium imputed carry cost
(3)
1,648
2,580
5,779
9,013
Gain on other real estate transactions,
net
(1,543)
(129)
(2,002)
(328)
Legal settlements
22
59
1,100
35
Income tax expense (benefit)
2,179
(27)
1,434
(1,069)
Core FFO attributable to common
stockholders
$
287,325
$
289,814
$
835,921
$
938,830
Average shares outstanding - diluted
139,737,725
140,603,722
139,645,069
140,702,803
Earnings per share - diluted
$
0.56
$
1.05
$
4.79
$
3.46
FFO per common share - diluted
$
1.96
$
2.03
$
5.86
$
6.52
Core FFO per common share - diluted
$
2.06
$
2.06
$
5.99
$
6.67
(1) Amounts for the three and nine months
ended September 30, 2021 include net unrealized gains on technology
investments of $6,924 and $10,094, respectively. The amount for the
nine months ended September 30, 2021 is partially offset by the
write-off of asset management fee intangibles associated with the
disposition of the final two AC JV communities.
(2) Aggregate impact of (i) Gain on
for-sale condominiums and (ii) For-sale condominium marketing,
operating and administrative costs, is a net gain of $158 for Q3
2021 and net expense of $1,402 for YTD 2021 and a net expense of
$646 for Q3 2020 and net gain of $4,162 for YTD 2020,
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.
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, 2021 is as follows (dollars in thousands):
TABLE 4
Core EBITDAre
$
345,844
Interest expense
$
55,921
Interest Coverage
6.2 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 2021 Core EBITDAre, as adjusted. A calculation of Net
Debt-to-Core EBITDAre is as follows (dollars in thousands):
TABLE 5
Total debt principal (1)
$
7,844,286
Cash and cash in escrow
(435,850)
Net debt
$
7,408,436
Core EBITDAre (2)
$
345,844
Core EBITDAre, annualized
$
1,383,376
Net Debt-to-Core EBITDAre
5.4 times
(1) Balance at September 30, 2021 excludes
$9,915 of debt discount and $38,448 of deferred financing costs as
reflected in unsecured notes, net, and $13,806 of debt discount and
$2,813 of deferred financing costs as reflected in notes payable on
the Condensed Consolidated Balance Sheets.
(2) For additional detail, see Definitions
and Reconciliations of Non-GAAP Financial Measures and Other Terms,
table 2.
NOI is defined by the Company as
total property revenue less direct property operating expenses
(including property taxes), and excluding corporate-level income
(including management, development and other fees), corporate-level
property management and other indirect operating expenses, expensed
transaction, development and other pursuit costs, net of
recoveries, interest expense, net, loss (gain) on extinguishment of
debt, net, general and administrative expense, joint venture
(income) loss, depreciation expense, corporate income tax expense
(benefit), casualty and impairment loss (gain), net, gain on sale
of communities, (gain) loss on other real estate transactions, net
for-sale condominium activity and net operating income from real
estate assets sold or held for sale. The Company considers NOI to
be an important and appropriate supplemental performance measure to
Net Income of operating performance of a community or communities
because it helps both investors and management to understand the
core operations of a community or communities prior to the
allocation of any corporate-level property management overhead or
financing-related costs. NOI reflects the operating performance of
a community, and allows for an easier comparison of the operating
performance of individual assets or groups of assets. In addition,
because prospective buyers of real estate have different financing
and overhead structures, with varying marginal impact to overhead
as a result of acquiring real estate, NOI is considered by many in
the real estate industry to be a useful measure for determining the
value of a real estate asset or groups of assets.
Residential NOI represents results attributable to the Company's
apartment rental operations, including parking and other ancillary
Residential revenue. A reconciliation of Residential NOI to Net
Income, as well as a breakdown of Residential NOI by operating
segment, is as follows (dollars in thousands):
TABLE 6
Q3
Q3
Q2
Q1
Q4
YTD
YTD
2021
2020
2021
2021
2020
2021
2020
Net income
$
78,847
$
147,717
$
447,977
$
142,234
$
341,114
$
669,058
$
486,592
Indirect operating expenses, net of
corporate income
25,322
23,837
24,318
24,470
27,400
74,110
70,043
Expensed transaction, development and
other pursuit costs, net of recoveries
417
567
1,653
(170)
8,110
1,900
4,289
Interest expense, net
55,987
53,249
56,104
52,613
51,589
164,704
162,562
Loss (gain) on extinguishment of debt,
net
17,890
(105)
—
(122)
—
17,768
9,333
General and administrative expense
17,313
13,985
18,465
17,352
13,465
53,130
46,878
(Income) loss from investments in
unconsolidated entities
(6,867)
(5,083)
(26,559)
467
348
(32,959)
(6,770)
Depreciation expense
193,791
175,348
184,472
183,297
177,823
561,560
529,508
Income tax expense (benefit)
2,179
(27)
10
(755)
(2,178)
1,434
(1,069)
Casualty and impairment loss
1,940
—
1,177
—
—
3,117
—
Gain on sale of communities
(58)
(31,607)
(334,569)
(53,727)
(249,106)
(388,354)
(91,338)
Gain on other real estate transactions,
net
(1,543)
(129)
(32)
(427)
(112)
(2,002)
(328)
Net for-sale condominium activity
(158)
646
647
913
1,611
1,402
(4,162)
NOI from real estate assets sold or held
for sale
(2,373)
(14,686)
(6,921)
(8,099)
(13,512)
(17,393)
(47,798)
NOI
382,687
363,712
366,742
358,046
356,552
1,107,475
1,157,740
Commercial NOI
(6,823)
(4,362)
(5,678)
(5,367)
343
(17,868)
(13,131)
Residential NOI
$
375,864
$
359,350
$
361,064
$
352,679
$
356,895
$
1,089,607
$
1,144,609
Residential NOI
Same Store:
New England
$
47,916
$
48,220
$
47,678
$
46,278
$
47,813
$
141,872
$
152,343
Metro NY/NJ
71,687
71,257
70,148
70,166
71,939
212,001
224,022
Mid-Atlantic
55,410
56,156
55,227
55,831
56,245
166,468
180,827
Southeast FL
5,015
3,315
4,545
4,178
3,966
13,738
11,718
Denver, CO
4,011
3,418
3,935
4,019
3,712
11,965
10,084
Pacific NW
17,929
18,448
17,714
17,183
17,505
52,826
58,388
No. California
62,566
70,530
62,854
63,558
65,901
188,978
230,455
So. California
78,362
72,475
72,491
71,654
72,795
222,507
231,715
Total Same Store
342,896
343,819
334,592
332,867
339,876
1,010,355
1,099,552
Other Stabilized
16,196
13,228
15,141
13,287
12,718
44,624
38,487
Development/Redevelopment
16,772
2,303
11,331
6,525
4,301
34,628
6,570
Residential NOI
$
375,864
$
359,350
$
361,064
$
352,679
$
356,895
$
1,089,607
$
1,144,609
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
2021
2020
2021
2021
2020
2021
2020
Revenue from real estate assets sold or
held for sale
$
3,831
$
24,308
$
11,334
$
13,111
$
21,522
$
28,276
$
75,864
Operating expenses from real estate assets
sold or held for sale
(1,458)
(9,622)
(4,413)
(5,012)
(8,010)
(10,883)
(28,066)
NOI from real estate assets sold or held
for sale
$
2,373
$
14,686
$
6,921
$
8,099
$
13,512
$
17,393
$
47,798
Commercial NOI is composed of the following components (in
thousands):
TABLE 8
Q3
Q3
Q2
Q1
Q4
YTD
YTD
2021
2020
2021
2021
2020
2021
2020
Commercial Revenue
$
8,366
$
5,633
$
7,133
$
6,839
$
974
$
22,338
$
17,120
Commercial Operating Expenses
(1,543)
(1,271)
(1,455)
(1,472)
(1,317)
(4,470)
(3,989)
Commercial NOI
$
6,823
$
4,362
$
5,678
$
5,367
$
(343)
$
17,868
$
13,131
Other Stabilized is composed of
completed consolidated communities that the Company owns, which
have Stabilized Operations as of January 1, 2021, or which were
acquired subsequent to January 1, 2020. Other Stabilized excludes
communities that are conducting or are probable to conduct
substantial redevelopment activities.
Projected FFO and Projected Core
FFO, as provided within this release in the Company’s
outlook, are calculated on a basis consistent with historical FFO
and Core FFO, and are therefore considered to be appropriate
supplemental measures to projected Net Income from projected
operating performance. A reconciliation of the ranges provided for
Projected FFO per share (diluted) for the fourth quarter and full
year 2021 to the ranges provided for projected EPS (diluted) and
corresponding reconciliation of the ranges for Projected FFO per
share to the ranges for Projected Core FFO per share are as
follows:
TABLE 9
Low Range
High Range
Projected EPS (diluted) - Q4 2021
$
2.25
$
2.35
Depreciation (real estate related)
1.36
1.36
Gain on sale of communities
(1.44)
(1.44)
Projected FFO per share (diluted) - Q4
2021
2.17
2.27
Adjustments related to residential
for-sale condominiums at The Park Loggia
0.01
0.01
Other
0.01
0.01
Projected Core FFO per share (diluted) -
Q4 2021
$
2.19
$
2.29
Projected EPS (diluted) - Full Year
2021
$
7.04
$
7.14
Depreciation (real estate related)
5.35
5.35
Gain on sale of communities
(4.36)
(4.36)
Projected FFO per share (diluted) - Full
Year 2021
8.03
8.13
Adjustments related to residential
for-sale condominiums at The Park Loggia
0.06
0.06
Loss on extinguishment of consolidated
debt and gain on interest rate contract
0.11
0.11
Unconsolidated entity gains, net
(0.07)
(0.07)
Legal and other settlements
0.01
0.01
Executive transition compensation
costs
0.02
0.02
Income taxes
0.02
0.02
Projected Core FFO per share (diluted) -
Full Year 2021
$
8.18
$
8.28
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 is composed of
consolidated communities where substantial redevelopment is in
progress or is probable to begin during the current year.
Redevelopment is considered substantial when (i) capital invested
during the reconstruction effort is expected to exceed the lesser
of $5,000,000 or 10% of the community’s pre-redevelopment basis and
(ii) physical occupancy is below or is expected to be below 90%
during or as a result of the redevelopment activity. Redevelopment
includes one community containing 344 apartment homes that is
currently under active redevelopment as of September 30, 2021.
Residential Rental Revenue with
Concessions on a Cash Basis is considered by the Company to
be a supplemental measure to Residential rental revenue in
conformity with GAAP to help investors evaluate the impact of both
current and historical concessions on GAAP-based Residential rental
revenue and to more readily enable comparisons to revenue as
reported by other companies. In addition, Residential Rental
Revenue with Concessions on a Cash Basis allows an investor to
understand the historical trend in cash concessions.
A reconciliation of Same Store Residential rental revenue in
conformity with GAAP to Residential Rental Revenue with Concessions
on a Cash Basis is as follows (dollars in thousands):
TABLE 10
Q3
Q3
Q2
YTD
YTD
2021
2020
2021
2021
2020
Residential rental revenue (GAAP
basis)
$
513,751
$
508,684
$
497,415
$
1,504,243
$
1,573,160
Residential concessions amortized
15,298
6,016
16,610
46,479
9,562
Residential concessions granted
(8,472)
(15,779)
(13,538)
(37,786)
(28,392)
Residential Rental Revenue with
Concessions on a Cash Basis
$
520,577
$
498,921
$
500,487
$
1,512,936
$
1,554,330
Q3 2021
Q3 2021
YTD 2021
vs. Q3 2020
vs. Q2 2021
vs. YTD 2020
% change -- GAAP revenue
1.0
%
3.3
%
(4.4)
%
% change -- cash revenue
4.3
%
4.0
%
(2.7)
%
Residential represents results
attributable to the Company's apartment rental operations,
including parking and other ancillary Residential revenue.
Same Store is composed of
consolidated communities in the markets where the Company has a
significant presence 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 2021 operating results, Same Store is composed of
consolidated communities that have Stabilized Operations as of
January 1, 2020, 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.
Same Store 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, 2021. Additionally, this information
should not be interpreted as predicting the Company’s financial
performance, results of operations or liquidity for any period.
Stabilized Operations/Restabilized
Operations is defined as the earlier of (i) attainment of
90% physical occupancy or (ii) the one-year anniversary of
completion of development or redevelopment.
Total Capital Cost includes all
capitalized costs projected to be or actually incurred to develop
the respective Development or Redevelopment community, including
land acquisition costs, construction costs, real estate taxes,
capitalized interest and loan fees, permits, professional fees,
allocated development overhead and other regulatory fees, offset by
proceeds from the sale of any associated land or improvements, all
as determined in accordance with GAAP. Total Capital Cost also
includes costs incurred related to first generation commercial
tenants, such as tenant improvements and leasing commissions. For
Redevelopment communities, Total Capital Cost excludes costs
incurred prior to the start of redevelopment when indicated. With
respect to communities where development or redevelopment was
completed in a prior or the current period, Total Capital Cost
reflects the actual cost incurred, plus any contingency estimate
made by management. Total Capital Cost for communities identified
as having joint venture ownership, either during construction or
upon construction completion, represents the total projected joint
venture contribution amount. For joint ventures not in
construction, Total Capital Cost is equal to gross real estate
cost.
Unconsolidated Development is
composed of communities that are either currently under
construction, or were under construction and were completed during
the current year, in which we have an indirect ownership interest
through our investment interest in an unconsolidated joint venture.
These communities may be partially or fully complete and
operating.
Unencumbered NOI as calculated by
the Company represents NOI generated by real estate assets
unencumbered by outstanding secured notes payable as of September
30, 2021 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, 2021 is
as follows (dollars in thousands):
TABLE 11
Year to Date 2021
NOI
Residential NOI:
Same Store
$
1,010,355
Other Stabilized
44,624
Development/Redevelopment
34,628
Total Residential NOI
1,089,607
Commercial NOI
17,868
NOI from real estate assets sold or held
for sale
17,393
Total NOI generated by real estate
assets
1,124,868
Less NOI on encumbered assets
(62,944)
NOI on unencumbered assets
$
1,061,924
Unencumbered NOI
94
%
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Reserved
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Jason Reilley, 703-317-4681 Vice President of Investor
Relations
Avalonbay Communities (NYSE:AVB)
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