AvalonBay Communities, Inc. (NYSE: AVB) (the “Company”) reported
today that Net Income Attributable to Common Stockholders for the
three months ended June 30, 2022 was $138,691,000. This resulted in
a decrease in Earnings per Share – diluted (“EPS”) for the three
months ended June 30, 2022 of 69.2% to $0.99 from $3.21 for the
prior year period, primarily attributable to a decrease in gain on
sale of real estate, partially offset by an increase in Same Store
Residential NOI, as detailed in the table below.
Funds from Operations attributable to common stockholders -
diluted (“FFO”) per share for the three months ended June 30, 2022
increased 22.3% to $2.41 from $1.97 for the prior year period. Core
FFO per share (as defined in this release) for the three months
ended June 30, 2022 increased 22.7% to $2.43 from $1.98 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 June 30, 2022 to its results for the prior year period:
Q2 2022 Results Compared to Q2
2021
Per Share (1)
EPS
FFO
Core FFO
Q2 2021 per share reported results
$
3.21
$
1.97
$
1.98
Same Store Residential NOI (2)
0.41
0.41
0.41
Development and Other Stabilized
Residential NOI
0.17
0.17
0.17
Commercial NOI
0.01
0.01
0.01
Overhead and other
(0.08
)
(0.08
)
(0.06
)
Capital markets and transaction
activity
(0.08
)
(0.08
)
(0.09
)
Unconsolidated investment income
0.01
0.01
0.01
Gain on sale of real estate and
depreciation expense
(2.66
)
—
—
Q2 2022 per share reported results
$
0.99
$
2.41
$
2.43
(1) For additional detail on reconciling
items between EPS, FFO and Core FFO, see Definitions and
Reconciliations, table 3.
(2) Consists of increases of $0.46 in
revenue and $0.05 in operating expenses.
The following table compares the Company’s actual results for
EPS, FFO per share and Core FFO per share for the three months
ended June 30, 2022 to its April 2022 outlook:
Q2 2022 Results Compared to
April 2022 Outlook
Per Share
EPS
FFO
Core FFO
Projected per share (1)
$
2.26
$
2.29
$
2.31
Same Store Residential NOI (2)
0.11
0.11
0.11
Development and Other Stabilized
Residential NOI
0.01
0.01
0.01
Overhead and other
(0.03
)
(0.03
)
(0.02
)
Capital markets and transaction
activity
—
—
0.01
Unconsolidated investment income and
other
0.02
0.02
0.01
Income taxes
0.01
0.01
—
Gain on sale of real estate and
depreciation expense
(1.39
)
—
—
Q2 2022 per share reported results
$
0.99
$
2.41
$
2.43
(1) The mid-point of the Company's April
2022 outlook.
(2) Consists of $0.09 for revenue and
$0.02 for operating expenses.
For the six months ended June 30, 2022, EPS decreased 32.4% to
$2.86 from $4.23 for the prior year period, FFO per share increased
18.9% to $4.65 from $3.91 for the prior year period, and Core FFO
per share increased 19.3% to $4.69 from $3.93 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 six months ended
June 30, 2022 to its results for the prior year period:
YTD 2022 Results Compared to
YTD 2021
Per Share (1)
EPS
FFO
Core FFO
YTD 2021 per share reported results
$
4.23
$
3.91
$
3.93
Same Store Residential NOI (2)
0.68
0.68
0.68
Development and Other Stabilized
Residential NOI
0.35
0.35
0.35
Commercial NOI
0.04
0.04
0.04
Overhead and other
(0.11
)
(0.11
)
(0.11
)
Capital markets and transaction
activity
(0.20
)
(0.20
)
(0.21
)
Unconsolidated investment income
0.01
0.01
0.01
Income taxes
(0.03
)
(0.03
)
—
Gain on sale of real estate and
depreciation expense
(2.11
)
—
—
YTD 2022 per share reported results
$
2.86
$
4.65
$
4.69
(1) For additional detail on reconciling
items between EPS, FFO and Core FFO, see Definitions and
Reconciliations, table 3.
(2) Consists of increases of $0.80 in
revenue and $0.12 in operating expenses.
Same Store Operating Results for the Three Months Ended June
30, 2022 Compared to the Prior Year Period
Same Store total revenue increased $65,965,000, or 13.1%, to
$568,176,000. Residential revenue increased $64,523,000, or 13.0%,
to $562,169,000. Same Store Residential rental revenue increased
12.9%, as detailed in the following table:
Same Store Residential Rental
Revenue Change
Q2 2022 Compared to Q2
2021
Residential rental revenue
Lease rates
7.6
%
Concessions and other discounts
2.3
%
Economic occupancy
0.2
%
Other rental revenue
1.0
%
Uncollectible lease revenue (excluding
rent relief) (1)
(0.6
) %
Rent relief (2)
2.4
%
Total Residential rental revenue
12.9
%
(1) Adjusting to remove the impact of rent
relief, uncollectible lease revenue as a percentage of total
Residential rental revenue increased to 3.27% in Q2 2022 from 3.10%
in Q2 2021.
(2) The Company recognized $14,973,000 and
$2,997,000 from government rent relief programs during Q2 2022 and
Q2 2021, respectively.
Same Store Residential operating expenses increased $7,760,000,
or 4.8%, to $170,543,000 and Same Store Residential NOI increased
$56,763,000, or 17.0%, to $391,626,000.
The following table presents percentage changes in Same Store
Residential rental revenue, operating expenses and NOI for the
three months ended June 30, 2022 compared to the three months ended
June 30, 2021:
Q2 2022 Compared to Q2
2021
Same Store Residential
Rental Revenue
(1)
Opex (2)
% of Q2 2022
NOI
Rental Revenue cash basis
(3)
NOI
New England
13.1
%
6.8
%
16.5
%
14.6
%
14.9
%
Metro NY/NJ
12.2
%
5.8
%
15.3
%
20.0
%
14.2
%
Mid-Atlantic
7.7
%
2.8
%
10.2
%
14.7
%
7.9
%
Southeast FL
22.6
%
3.8
%
35.5
%
1.6
%
20.7
%
Denver, CO
13.8
%
(8.1
) %
24.5
%
1.3
%
13.1
%
Pacific NW
17.0
%
2.1
%
24.2
%
6.4
%
14.6
%
N. California
9.2
%
5.0
%
11.0
%
18.2
%
7.4
%
S. California
18.7
%
5.0
%
25.3
%
23.2
%
17.5
%
Total
12.9
%
4.8
%
17.0
%
100.0
%
12.9
%
(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 Six Months Ended June
30, 2022 Compared to the Prior Year Period
Same Store total revenue increased $109,262,000, or 10.9%, to
$1,109,423,000. Residential revenue increased $106,505,000, or
10.7%, to $1,097,308,000. Same Store Residential rental revenue
increased 10.7%, as detailed in the following table:
Same Store Residential Rental
Revenue Change
YTD 2022 Compared to YTD
2021
Residential rental revenue
Lease rates
6.3
%
Concessions and other discounts
1.7
%
Economic occupancy
0.5
%
Other rental revenue
0.8
%
Uncollectible lease revenue (excluding
rent relief) (1)
(1.1
) %
Rent relief (2)
2.5
%
Total Residential rental revenue
10.7
%
(1) Adjusting to remove the impact of rent
relief, uncollectible lease revenue as a percentage of total
Residential rental revenue increased to 3.79% in YTD 2022 from
3.19% in YTD 2021.
(2) The Company recognized $28,272,000 and
$3,755,000 from government rent relief programs during YTD 2022 and
YTD 2021, respectively.
Same Store Residential operating expenses increased $15,294,000,
or 4.7%, to $338,131,000 and Same Store Residential NOI increased
$91,211,000, or 13.7%, to $759,177,000.
The following table presents percentage changes in Same Store
Residential rental revenue, operating expenses and NOI for the six
months ended June 30, 2022 compared to the six months ended June
30, 2021:
YTD 2022 Compared to YTD
2021
Same Store Residential
Rental Revenue
(1)
Opex (2)
% of YTD 2022
NOI
Rental Revenue cash basis
(3)
NOI
New England
11.1
%
6.7
%
13.6
%
14.4
%
13.6
%
Metro NY/NJ
10.4
%
6.5
%
12.2
%
20.2
%
12.8
%
Mid-Atlantic
6.3
%
3.5
%
7.7
%
14.9
%
7.1
%
Southeast FL
23.9
%
2.6
%
39.0
%
1.6
%
22.7
%
Denver, CO
12.8
%
(5.6
) %
21.0
%
1.3
%
11.6
%
Pacific NW
14.5
%
0.8
%
21.3
%
6.4
%
14.0
%
N. California
6.5
%
3.8
%
7.6
%
18.3
%
6.4
%
S. California
15.7
%
5.1
%
20.8
%
22.9
%
14.6
%
Total
10.7
%
4.7
%
13.7
%
100.0
%
11.4
%
(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.
Development Activity
Consolidated Development
Communities
During the three months ended June 30, 2022, the Company
completed the development of two communities:
- AVA RiNo, located in Denver, CO; and
- Avalon Brea Place, located in Brea, CA.
These communities contain an aggregate of 899 apartment homes
and were constructed for a Total Capital Cost of $380,000,000.
During the three months ended June 30, 2022, the Company started
the construction of two apartment communities:
- Avalon Durham, located in Durham, NC; and
- Avalon West Windsor, located in West Windsor, NJ.
These communities are expected to contain an aggregate of 871
apartment homes and 19,000 square feet of commercial space when
completed and be developed for an aggregate estimated Total Capital
Cost of $326,000,000. The Company expanded its existing Development
community, Avalon North Andover, adding 51 apartment homes at an
incremental estimated Total Capital Cost of $22,000,000.
During the six months ended June 30, 2022, the Company completed
the development of four communities containing an aggregate of
1,686 apartment homes for an aggregate Total Capital Cost of
$598,000,000.
At June 30, 2022, the Company had 16 consolidated Development
communities under construction that are expected to contain 4,919
apartment homes and 56,000 square feet of commercial space.
Estimated Total Capital Cost at completion for these Development
communities is $2,069,000,000.
The projected Total Capital Cost of Development Rights at June
30, 2022 was $4.7 billion.
Unconsolidated Development
Communities
During the three months ended June 30, 2022, the Company
completed the development of Avalon Alderwood Place, a 328
apartment home community located in Lynnwood, WA for a Total
Capital Cost of $110,000,000. The Company has a 50.0% equity
interest in the venture that owns Avalon Alderwood Place. At June
30, 2022, the Company had one Unconsolidated Development community
under construction that is expected to contain 475 apartment homes
and 56,000 square feet of commercial space.
Acquisition Activity
During the three months ended June 30, 2022, the Company
acquired Waterford Court, a wholly-owned community, located in
Addison, TX, containing 196 apartment homes for a purchase price of
$69,500,000.
During the six months ended June 30, 2022, the Company acquired
two wholly-owned communities containing 403 apartment homes and
16,000 square feet of commercial space for a total purchase price
of $164,500,000.
Disposition Activity
Consolidated Apartment
Communities
During the six months ended June 30, 2022, the Company sold
three wholly-owned communities containing an aggregate of 588
apartment homes. These assets were sold for $235,000,000 and a
weighted average initial Market Cap Rate of 3.9%, resulting in a
gain in accordance with GAAP of $148,708,000 and an Economic Gain
of $119,804,000.
In July 2022, the Company sold Avalon Green I, Avalon Green II
and Avalon Green III, three wholly-owned communities, located in
Elmsford, NY, that contain an aggregate of 617 apartment homes, for
$306,000,000. The Company intends to use the proceeds from the
disposition of the three phases of Avalon Green for the acquisition
of a wholly-owned community located in Florida, which is currently
under contract and expected to close in the three months ended
September 30, 2022.
During the three and six months ended June 30, 2022, the Company
sold 13 and 28, respectively, of the 172 residential condominiums
at The Park Loggia, located in New York, NY, for gross proceeds of
$41,002,000 and $81,338,000, respectively. As of June 30, 2022, the
Company has sold 151 of the 172 residential condominiums for
aggregate gross proceeds of $433,168,000 and the leasing of the
commercial space has been completed.
Unconsolidated Real Estate
Investments
In July 2022, Archstone 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
Grosvenor Tower containing 237 apartment homes for a sales price of
$95,250,000.
Structured Investment Program Activity
During the three months ended June 30, 2022, the Company entered
into the first commitments under its Structured Investment Program,
through which the Company will provide mezzanine loans or preferred
equity to third party multifamily developers. The initial
commitments are for two mezzanine loans of up to $79,575,000, in
the aggregate, to fund multifamily development projects in Denver,
CO, and Pleasant Hill, CA. At June 30, 2022, the Company had funded
$6,055,000 of these commitments.
Liquidity and Capital Markets
In March 2022, the Company established an unsecured commercial
paper note program which allows the Company to issue, from time to
time, unsecured commercial paper notes with varying maturities of
less than one year up to a maximum amount outstanding at any one
time of $500,000,000. The program is backstopped by the Company's
commitment to maintain available borrowing capacity under its
unsecured credit facility in an amount equal to actual borrowings
under the program. The Company did not have any amounts outstanding
under its commercial paper program as of June 30, 2022 and had
$175,000,000 outstanding as of the date of this release.
At June 30, 2022, the Company did not have any borrowings
outstanding under its $1,750,000,000 unsecured credit facility and
had $260,191,000 in unrestricted cash and cash in escrow.
The Company’s annualized Net Debt-to-Core EBITDAre (as defined
in this release) for the second quarter of 2022 was 4.9 times and
Unencumbered NOI (as defined in this release) for the six months
ended June 30, 2022 was 95%.
During the six months ended June 30, 2022, the Company repaid
$100,000,000 principal amount of its variable rate unsecured term
loan at its maturity. The variable rate unsecured term loan was
indexed to LIBOR plus 0.90% and entered into in February 2017.
During the three months ended June 30, 2022, in connection with
an underwritten offering of shares, the Company entered into
forward contracts to sell 2,000,000 shares of common stock by the
end of 2023 for approximate proceeds of $494,200,000 net of
offering fees and discounts and based on the initial forward price.
The proceeds that the Company expects to receive on the date or
dates of settlement are subject to certain customary adjustments
during the term of the forward contract for the Company's dividends
and a daily interest charge.
Third Quarter and Full Year 2022 Financial Outlook
For its third quarter and full year 2022 financial outlook, the
Company expects the following:
Projected EPS, Projected FFO and
Projected Core FFO Outlook (1)
Q3 2022
Full Year 2022
Low
High
Low
High
Projected EPS
$
3.48
—
$
3.58
$
7.53
—
$
7.73
Projected FFO per share
$
2.49
—
$
2.59
$
9.74
—
$
9.94
Projected Core FFO per share
$
2.47
—
$
2.57
$
9.76
—
$
9.96
(1) See Definitions and Reconciliations,
table 9, for reconciliations of Projected FFO per share and
Projected Core FFO per share to Projected EPS.
Full Year Financial
Outlook
Full Year 2022
vs. Full Year 2021
Low
High
Same Store:
Residential rental revenue change
10.75
%
—
11.75
%
Residential Opex change
4.5
%
—
5.5
%
Residential NOI change
13.5
%
—
15.0
%
The following table compares the Company’s actual results for
EPS, FFO per share and Core FFO per share for the second quarter
2022 to its third quarter 2022 financial outlook:
Q2 2022 Results Compared to Q3
2022 Outlook
Per Share
EPS
FFO
Core FFO
Q2 2022 per share reported results
$
0.99
$
2.41
$
2.43
Same Store Residential revenue
0.09
0.09
0.09
Same Store Residential Opex
(0.06
)
(0.06
)
(0.06
)
Development and Other Stabilized
Residential NOI
0.01
0.01
0.01
Commercial NOI
0.02
0.02
0.02
Capital markets and transaction
activity
0.02
0.02
—
Overhead and other
0.05
0.05
0.03
Gain on sale of real estate and
depreciation expense
2.41
—
—
Projected per share - Q3 2022 outlook
(1)
$
3.53
$
2.54
$
2.52
(1) Represents the mid-point of the
Company's outlook.
The following table compares the Company’s July 2022 outlook for
EPS, FFO per share and Core FFO per share for the full year 2022 to
its April 2022 financial outlook:
July 2022 Full Year Outlook
Compared to April 2022 Full Year Outlook
Per Share
EPS
FFO
Core FFO
Projected per share - April 2022 outlook
(1)
$
6.25
$
9.57
$
9.58
Same Store Residential revenue
0.31
0.31
0.31
Same Store Residential Opex
(0.01
)
(0.01
)
(0.01
)
Commercial NOI
0.01
0.01
0.01
Capital markets and transaction
activity
—
—
0.01
Overhead and other
(0.04
)
(0.04
)
(0.04
)
Gain on sale of real estate and
depreciation expense
1.11
—
—
Projected per share - July 2022 outlook
(1)
$
7.63
$
9.84
$
9.86
(1) Represents the mid-point of the
Company's outlook.
Other Matters
The Company will hold a conference call on July 28, 2022 at 1:00
PM ET to review and answer questions about this release, its second
quarter 2022 results, the Attachments (described below) and related
matters. To participate on the call, dial 800-289-0720 and use
conference id: 2742019.
To hear a replay of the call, which will be available from July
28, 2022 at 6:00 PM ET to August 4, 2022 at 6:00 PM ET, dial
888-203-1112 and use conference id: 2742019. 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 July 28, 2022.
About AvalonBay Communities, Inc.
As of June 30, 2022, the Company owned or held a direct or
indirect ownership interest in 299 apartment communities containing
89,037 apartment homes in 12 states and the District of Columbia,
of which 17 communities were under development and two communities
were under redevelopment. The Company is an equity REIT in the
business of developing, redeveloping, acquiring and managing
apartment communities in leading metropolitan areas in New England,
the New York/New Jersey Metro area, the Mid-Atlantic, the Pacific
Northwest, and 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,” "may," "shall," "will," "pursue"
and similar expressions that predict or indicate future events and
trends and that do not report historical matters, are based on the
Company’s expectations, forecasts and assumptions at the time of
this release, which may not be realized and involve risks and
uncertainties that cannot be predicted accurately or that might not
be anticipated. These could cause actual results, performance or
achievements to differ materially from the anticipated future
results, performance or achievements expressed or implied by the
forward-looking statements. Risks and uncertainties that might
cause such differences include the following: risks related to the
COVID-19 pandemic, including the effect, among other factors, on
the multifamily industry and the general economy of measures taken
by businesses and the government, such as governmental limitations
on the ability of multifamily owners to evict residents who are
delinquent in the payment of their rent, the preferences of
consumers and businesses for living and working arrangements, 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, including
rising interest rates, may affect our access to various sources of
capital and/or cost of capital, which may affect our business
activities, earnings and common stock price, among other things;
changes in local employment conditions, demand for apartment homes,
supply of competitive housing products, landlord-tenant laws,
including the adoption of 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, and general price inflation, may
result in increased financing and construction costs and may delay
and/or reduce the profitability of a community; debt and/or equity
financing for development, redevelopment or acquisitions of
communities may not be available or may not be available on
favorable terms; we may be unable to obtain, or experience delays
in obtaining, necessary governmental permits and authorizations;
expenses may result in communities that we develop or redevelop
failing to achieve expected profitability; our assumptions
concerning risks relating to joint ventures and our ability to
successfully dispose of certain assets may not be realized; our
assumptions and expectations in our financial outlook may prove to
be too optimistic; and the timing and net proceeds of condominium
sales at The Park Loggia 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, 2021 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 2022 operating results and other
financial data forecasts contained in this release. The Company
may, in its discretion, provide information in future public
announcements regarding its outlook that may be of interest to the
investment community. The format and extent of future outlooks may
be different from the format and extent of the information
contained in this release.
Definitions and Reconciliations
Non-GAAP financial measures and other capitalized terms, as used
in this earnings release, are defined, reconciled and further
explained on Attachment 13, Definitions and Reconciliations of
Non-GAAP Financial Measures and Other Terms. Attachment 13 is
included in the full earnings release available at the Company’s
website at http://www.avalonbay.com/earnings. This wire
distribution includes only the following definitions and
reconciliations.
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.
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.
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 computed in accordance
with GAAP before interest expense, income taxes, depreciation and
amortization. EBITDAre is calculated by the Company in accordance
with the definition adopted by the Board of Governors of the
National Association of Real Estate Investment Trusts (“Nareit”),
as EBITDA plus or minus losses and gains on the disposition of
depreciated property, plus impairment write-downs of depreciated
property, with adjustments to reflect the Company's share of
EBITDAre of unconsolidated entities. Core EBITDAre is the Company’s
EBITDAre as adjusted for non-core items outlined in the table
below. By further adjusting for items that are not considered part
of the Company’s core business operations, Core EBITDAre can help
one compare the core operating and financial performance of the
Company between periods. A reconciliation of EBITDA, EBITDAre and
Core EBITDAre to net income is as follows (dollars in
thousands):
TABLE 1
Q2
2022
Net income
$
138,566
Interest expense and loss on
extinguishment of debt
57,014
Income tax benefit
(159
)
Depreciation expense
199,302
EBITDA
$
394,723
Gain on sale of communities
(404
)
Unconsolidated entity EBITDAre adjustments
(1)
3,081
EBITDAre
$
397,400
Unconsolidated entity gains, net
(2,040
)
Structured Investment Program loan
reserve
1,608
Advocacy contributions
384
Loss on interest rate contract
297
Executive transition compensation
costs
407
Severance related costs
24
Development pursuit write-offs and
expensed transaction costs, net of recoveries
1,839
Gain on for-sale condominiums
(467
)
For-sale condominium marketing, operating
and administrative costs
538
Gain on other real estate transactions,
net
(43
)
Legal settlements
129
Core EBITDAre
$
400,076
(1) Includes joint venture interest,
taxes, depreciation, gain on dispositions of depreciated real
estate and impairment losses, if applicable, included in net
income.
Economic Gain is calculated by the
Company as the gain on sale in accordance with GAAP, less
accumulated depreciation through the date of sale and any other
adjustments that may be required under GAAP accounting. Management
generally considers Economic Gain to be an appropriate supplemental
measure to gain on sale in accordance with GAAP because it helps
investors to understand the relationship between the cash proceeds
from a sale and the cash invested in the sold community. The
Economic Gain for disposed communities is based on their respective
final settlement statements. A reconciliation of the aggregate
Economic Gain to the aggregate gain on sale in accordance with GAAP
for the wholly-owned communities disposed of during the six months
ended June 30, 2022 is as follows (dollars in thousands):
TABLE 2
YTD 2022
GAAP Gain
$
148,708
Accumulated Depreciation and Other
(28,904
)
Economic Gain
$
119,804
Economic Occupancy is defined as
total possible Residential revenue less vacancy loss as a
percentage of total possible Residential revenue. Total possible
Residential revenue (also known as “gross potential”) is determined
by valuing occupied units at contract rates and vacant units at
Market Rents. Vacancy loss is determined by valuing vacant units at
current Market Rents. By measuring vacant apartments at their
Market Rents, Economic Occupancy takes into account the fact that
apartment homes of different sizes and locations within a community
have different economic impacts on a community’s gross revenue.
FFO and Core FFO are 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
Q2
Q2
YTD
YTD
2022
2021
2022
2021
Net income attributable to common
stockholders
$
138,691
$
447,953
$
400,735
$
590,176
Depreciation - real estate assets,
including joint venture adjustments
198,493
183,257
399,145
365,571
Distributions to noncontrolling
interests
12
12
24
24
Gain on sale of unconsolidated entities
holding previously depreciated real estate
—
(23,305
)
—
(23,305
)
Gain on sale of previously depreciated
real estate
(404
)
(334,569
)
(149,204
)
(388,296
)
Casualty and impairment loss on real
estate
—
1,177
—
1,177
FFO attributable to common
stockholders
336,792
274,525
650,700
545,347
Adjusting items:
Unconsolidated entity gains, net (1)
(2,040
)
(2,233
)
(2,295
)
(2,132
)
Structured Investment Program loan reserve
(2)
1,608
—
1,608
—
Gain on extinguishment of consolidated
debt
—
—
—
(122
)
Loss (gain) on interest rate contract
297
—
(432
)
(2,654
)
Advocacy contributions
384
—
534
—
Executive transition compensation
costs
407
407
809
2,188
Severance related costs
24
102
65
102
Development pursuit write-offs and
expensed transaction costs, net of recoveries
1,839
527
1,998
302
Gain on for-sale condominiums (3)
(467
)
(575
)
(1,469
)
(706
)
For-sale condominium marketing, operating
and administrative costs (3)
538
1,222
1,304
2,266
For-sale condominium imputed carry cost
(4)
716
1,979
1,635
4,131
Gain on other real estate transactions,
net
(43
)
(32
)
(80
)
(459
)
Legal settlements
129
1,018
259
1,078
Income tax (benefit) expense (5)
(159
)
10
2,312
(745
)
Core FFO attributable to common
stockholders
$
340,025
$
276,950
$
656,948
$
548,596
Average shares outstanding - diluted
139,934,478
139,650,639
139,955,280
139,601,526
Earnings per share - diluted
$
0.99
$
3.21
$
2.86
$
4.23
FFO per common share - diluted
$
2.41
$
1.97
$
4.65
$
3.91
Core FFO per common share - diluted
$
2.43
$
1.98
$
4.69
$
3.93
(1) Amounts for the three and six months
ended June 30, 2022 include unrealized gains of $2,040 on property
technology investments. Amounts for the three and six months ended
June 30, 2021 include unrealized gains of $3,272 on property
technology investments, partially offset by the write-off of asset
management fee intangibles associated with the disposition of the
final two Archstone Multifamily Partners AC JV LP communities.
(2) Amounts represent the expected credit
losses associated with the Company's lending commitments under its
Structured Investment Program. The timing and amount of any actual
losses that will be incurred, if any, is to be determined.
(3) Aggregate impact of (i) Gain on
for-sale condominiums and (ii) For-sale condominium marketing,
operating and administrative costs, is a net expense of $71 for Q2
2022 and net gain of $165 for YTD 2022 and a net expense of $647
for Q2 2021 and $1,560 for YTD 2021, respectively.
(4) Represents the imputed carry cost of
the for-sale residential condominiums at The Park Loggia. The
Company computes this adjustment by multiplying the Total Capital
Cost of completed and unsold for-sale residential condominiums by
the Company's weighted average unsecured debt effective interest
rate.
(5) YTD 2022 income tax expense is the
recognition of taxes primarily associated with The Park Loggia.
Interest Coverage is calculated by
the Company as Core EBITDAre divided by interest expense. Interest
Coverage is presented by the Company because it provides rating
agencies and investors an additional means of comparing our ability
to service debt obligations to that of other companies. A
calculation of Interest Coverage for the three months ended June
30, 2022 is as follows (dollars in thousands):
TABLE 4
Core EBITDAre (1)
$
400,076
Interest expense (2)
$
57,014
Interest Coverage
7.0 times
(1) For additional detail, see Definitions
and Reconciliations table 1.
(2) Excludes the impact of loss on
interest rate contract.
Market Cap Rate is defined by the
Company as Projected NOI of a single community for the first 12
months of operations (assuming no repositioning), less estimates
for non-routine allowance of approximately $300 - $500 per
apartment home, divided by the gross sales price for the community.
Projected NOI, as referred to above, represents management’s
estimate of projected rental revenue minus projected operating
expenses before interest, income taxes (if any), depreciation and
amortization. For this purpose, management’s projection of
operating expenses for the community includes a management fee of
2.25%. The Market Cap Rate, which may be determined in a different
manner by others, is a measure frequently used in the real estate
industry when determining the appropriate purchase price for a
property or estimating the value for a property. Buyers may assign
different Market Cap Rates to different communities when
determining the appropriate value because they (i) may project
different rates of change in operating expenses and capital
expenditure estimates and (ii) may project different rates of
change in future rental revenue due to different estimates for
changes in rent and occupancy levels. The weighted average Market
Cap Rate is weighted based on the gross sales price of each
community.
Market Rents as reported by the
Company are based on the current market rates set by the Company
based on its experience in renting apartments and publicly
available market data. Market Rents for a period are based on the
average Market Rents during that period and do not reflect any
impact for cash concessions.
Net Debt-to-Core EBITDAre is
calculated by the Company as total debt (secured and unsecured
notes, and the Company's variable rate unsecured credit facility
and commercial paper program) that is consolidated for financial
reporting purposes, less consolidated cash and cash in escrow,
divided by annualized second quarter 2022 Core EBITDAre. A
calculation of Net Debt-to-Core EBITDAre is as follows (dollars in
thousands):
TABLE 5
Total debt principal (1)
$
8,064,003
Cash and cash in escrow
(260,191
)
Net debt
$
7,803,812
Core EBITDAre (2)
$
400,076
Core EBITDAre, annualized
$
1,600,304
Net Debt-to-Core EBITDAre
4.9 times
(1) Balance at June 30, 2022 excludes
$9,201 of debt discount and $38,014 of deferred financing costs as
reflected in unsecured notes, net, and $12,973 of debt discount and
$2,622 of deferred financing costs as reflected in notes payable on
the Condensed Consolidated Balance Sheets.
(2) For additional detail, see Definitions
and Reconciliations, table 1.
NOI is defined by the Company as
total property revenue less direct property operating expenses
(including property taxes), and excluding corporate-level income
(including management, development and other fees), corporate-level
property management and other indirect operating expenses, expensed
transaction, development and other pursuit costs, net of
recoveries, interest expense, net, loss (gain) on extinguishment of
debt, net, general and administrative expense, income from
investments in unconsolidated entities, depreciation expense,
income tax (benefit) expense, casualty and impairment loss, gain on
sale of communities, gain on other real estate transactions, net,
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
Q2
Q2
Q1
Q4
YTD
YTD
2022
2021
2022
2021
2022
2021
Net income
$
138,566
$
447,977
$
262,076
$
335,298
$
400,642
$
590,211
Property management and other indirect
operating expenses, net of corporate income
30,632
24,318
28,113
24,555
58,745
48,788
Expensed transaction, development and
other pursuit costs, net of recoveries
2,364
1,653
987
1,331
3,351
1,483
Interest expense, net
58,797
56,104
56,526
55,711
115,323
108,717
Loss (gain) on extinguishment of debt,
net
—
—
—
19
—
(122
)
General and administrative expense
21,291
18,465
17,421
16,481
38,712
35,817
Income from investments in unconsolidated
entities
(2,480
)
(26,559
)
(317
)
(5,626
)
(2,797
)
(26,092
)
Depreciation expense
199,302
184,472
201,786
197,036
401,088
367,769
Income tax (benefit) expense
(159
)
10
2,471
4,299
2,312
(745
)
Casualty and impairment loss
—
1,177
—
2
—
1,177
Gain on sale of communities
(404
)
(334,569
)
(148,800
)
(213,881
)
(149,204
)
(388,296
)
Gain on other real estate transactions,
net
(43
)
(32
)
(37
)
(95
)
(80
)
(459
)
Net for-sale condominium activity
71
647
(236
)
(425
)
(165
)
1,560
NOI from real estate assets sold or held
for sale
(3,650
)
(13,893
)
(5,266
)
(8,383
)
(8,916
)
(28,472
)
NOI
444,287
359,770
414,724
406,322
859,011
711,336
Commercial NOI
(7,763
)
(5,620
)
(8,320
)
(8,045
)
(16,083
)
(10,931
)
Residential NOI
$
436,524
$
354,150
$
406,404
$
398,277
$
842,928
$
700,405
Residential NOI
Same Store:
New England
$
57,176
$
49,074
$
52,478
$
52,498
$
109,654
$
96,531
Metro NY/NJ
78,483
68,069
74,707
74,329
153,190
136,536
Mid-Atlantic
57,393
52,075
55,501
55,104
112,894
104,796
Southeast FL
6,161
4,545
5,965
5,904
12,126
8,723
Denver, CO
4,900
3,935
4,727
4,486
9,627
7,954
Pacific NW
25,212
20,303
23,122
21,598
48,334
39,863
N. California
71,439
64,371
67,807
67,052
139,246
129,418
S. California
90,862
72,491
83,244
82,887
174,106
144,145
Total Same Store
391,626
334,863
367,551
363,858
759,177
667,966
Other Stabilized
30,973
14,716
26,846
25,081
57,819
24,527
Development/Redevelopment
13,925
4,571
12,007
9,338
25,932
7,912
Residential NOI
$
436,524
$
354,150
$
406,404
$
398,277
$
842,928
$
700,405
NOI as reported by the Company does not include the operating
results from assets sold or classified as held for sale. A
reconciliation of NOI from communities sold or classified as held
for sale is as follows (dollars in thousands):
TABLE 7
Q2
Q2
Q1
Q4
YTD
YTD
2022
2021
2022
2021
2022
2021
Revenue from real estate assets sold or
held for sale
$
5,699
$
22,887
$
8,812
$
13,891
$
14,510
$
47,165
Operating expenses from real estate assets
sold or held for sale
(2,049
)
(8,994
)
(3,546
)
(5,508
)
(5,594
)
(18,693
)
NOI from real estate assets sold or held
for sale
$
3,650
$
13,893
$
5,266
$
8,383
$
8,916
$
28,472
Commercial NOI is composed of the following components (in
thousands):
TABLE 8
Q2
Q2
Q1
Q4
YTD
YTD
2022
2021
2022
2021
2022
2021
Commercial Revenue
$
9,337
$
7,046
$
10,031
$
9,396
$
19,368
$
13,800
Commercial Operating Expenses
(1,574
)
(1,426
)
(1,711
)
(1,351
)
(3,285
)
(2,869
)
Commercial NOI
$
7,763
$
5,620
$
8,320
$
8,045
$
16,083
$
10,931
Other Stabilized is composed of
completed consolidated communities that the Company owns, which
have Stabilized Operations as of January 1, 2022, or which were
acquired subsequent to January 1, 2021. Other Stabilized excludes
communities that are conducting or are probable to conduct
substantial redevelopment activities.
Projected FFO and Projected Core
FFO, as provided within this release in the Company’s
outlook, are calculated on a basis consistent with historical FFO
and Core FFO, and are therefore considered to be appropriate
supplemental measures to projected Net Income from projected
operating performance. A reconciliation of the ranges provided for
Projected FFO per share (diluted) for the third quarter and full
year 2022 to the ranges provided for projected EPS (diluted) and
corresponding reconciliation of the ranges for Projected FFO per
share to the ranges for Projected Core FFO per share are as
follows:
TABLE 9
Low Range
High Range
Projected EPS (diluted) - Q3 2022
$
3.48
$
3.58
Depreciation (real estate related)
1.42
1.42
Gain on sale of communities
(2.41
)
(2.41
)
Projected FFO per share (diluted) - Q3
2022
2.49
2.59
Legal settlements
(0.03
)
(0.03
)
Structured Investment Program loan
reserve
0.01
0.01
Projected Core FFO per share (diluted) -
Q3 2022
$
2.47
$
2.57
Projected EPS (diluted) - Full Year
2022
$
7.53
$
7.73
Depreciation (real estate related)
5.70
5.70
Gain on sale of communities
(3.49
)
(3.49
)
Projected FFO per share (diluted) - Full
Year 2022
9.74
9.94
Non-core transaction activity
(0.08
)
(0.08
)
Development pursuit write-offs and
expensed transaction costs, net of recoveries
0.02
0.02
Executive transition compensation
costs
0.01
0.01
Legal settlements
(0.02
)
(0.02
)
Structured Investment Program loan
reserve
0.02
0.02
Income tax expense
0.07
0.07
Projected Core FFO per share (diluted) -
Full Year 2022
$
9.76
$
9.96
Projected NOI, as used within this
release for certain Development communities and in calculating the
Market Cap Rate for dispositions, represents management’s estimate,
as of the date of this release (or as of the date of the buyer’s
valuation in the case of dispositions), of projected stabilized
rental revenue minus projected stabilized operating expenses. For
Development communities, Projected NOI is calculated based on the
first twelve months of Stabilized Operations following the
completion of construction. In calculating the Market Cap Rate,
Projected NOI for dispositions is calculated for the first twelve
months following the date of the buyer’s valuation. Projected
stabilized rental revenue represents management’s estimate of
projected gross potential minus projected stabilized economic
vacancy and adjusted for projected stabilized concessions plus
projected stabilized other rental revenue. Projected stabilized
operating expenses do not include interest, income taxes (if any),
depreciation or amortization, or any allocation of corporate-level
property management overhead or general and administrative costs.
In addition, projected stabilized operating expenses for
Development communities do not include property management fee
expense. Projected gross potential for Development communities and
dispositions is generally based on leased rents for occupied homes
and management’s best estimate of rental levels for homes which are
currently unleased, as well as those homes which will become
available for lease during the twelve month forward period used to
develop Projected NOI. The weighted average Projected NOI as a
percentage of Total Capital Cost ("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 two communities containing 1,058 apartment homes that are
currently under active redevelopment as of June 30, 2022.
Residential represents results
attributable to the Company's apartment rental operations,
including parking and other ancillary Residential revenue.
Residential Rental Revenue with
Concessions on a Cash Basis is considered by the Company to
be a supplemental measure to Residential rental revenue in
conformity with GAAP to help investors evaluate the impact of both
current and historical concessions on GAAP-based Residential rental
revenue and to more readily enable comparisons to revenue as
reported by other companies. In addition, Residential Rental
Revenue with Concessions on a Cash Basis allows an investor to
understand the historical trend in cash concessions.
A reconciliation of Same Store Residential rental revenue in
conformity with GAAP to Residential Rental Revenue with Concessions
on a Cash Basis is as follows (dollars in thousands):
TABLE 10
Q2
Q2
Q1
YTD
YTD
2022
2021
2022
2022
2021
Residential rental revenue (GAAP
basis)
$
561,681
$
497,284
$
534,796
$
1,096,478
$
990,112
Residential concessions amortized
5,200
16,948
8,288
13,488
31,987
Residential concessions granted
(1,666
)
(13,501
)
(2,346
)
(4,012
)
(29,632
)
Residential Rental Revenue with
Concessions on a Cash Basis
$
565,215
$
500,731
$
540,738
$
1,105,954
$
992,467
Q2 2022
Q2 2022
YTD 2022
vs. Q2 2021
vs. Q1 2022
vs. YTD 2021
% change -- GAAP revenue
12.9
%
5.0
%
10.7
%
% change -- cash revenue
12.9
%
4.5
%
11.4
%
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 2022 operating results, Same Store is composed of
consolidated communities that have Stabilized Operations as of
January 1, 2021, are not conducting or are not probable to conduct
substantial redevelopment activities and are not held for sale or
probable for disposition within the current year.
Stabilized Operations/Restabilized
Operations is defined as the earlier of (i) attainment of
90% physical occupancy or (ii) the one-year anniversary of
completion of development or redevelopment.
Total Capital Cost includes all
capitalized costs projected to be or actually incurred to develop
the respective Development or Redevelopment community, including
land acquisition costs, construction costs, real estate taxes,
capitalized interest and loan fees, permits, professional fees,
allocated development overhead and other regulatory fees, 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 June 30,
2022 as a percentage of total NOI generated by real estate assets.
The Company believes that current and prospective unsecured
creditors of the Company view Unencumbered NOI as one indication of
the borrowing capacity of the Company. Therefore, when reviewed
together with the Company’s Interest Coverage, EBITDA and cash flow
from operations, the Company believes that investors and creditors
view Unencumbered NOI as a useful supplemental measure for
determining the financial flexibility of an entity. A calculation
of Unencumbered NOI for the six months ended June 30, 2022 is as
follows (dollars in thousands):
TABLE 11
Year to Date 2022
NOI
Residential NOI:
Same Store
$
759,177
Other Stabilized
57,819
Development/Redevelopment
25,932
Total Residential NOI
842,928
Commercial NOI
16,083
NOI from real estate assets sold or held
for sale
8,916
Total NOI generated by real estate
assets
867,927
Less NOI on encumbered assets
(44,556
)
NOI on unencumbered assets
$
823,371
Unencumbered NOI
95
%
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Reserved
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version on businesswire.com: https://www.businesswire.com/news/home/20220726006129/en/
Jason Reilley Vice President of Investor Relations
703-317-4681
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