AvalonBay Communities, Inc. (NYSE: AVB) (the “Company”) reported
Earnings per Share – diluted (“EPS”), Funds from Operations
attributable to common stockholders - diluted (“FFO”) per share and
Core FFO per share (as defined in this release) for the three
months ended March 31, 2024 and 2023 as detailed below.
Q1 2024
Q1 2023
% Change
EPS
$
1.22
$
1.05
16.2
%
FFO per share (1)
$
2.73
$
2.54
7.5
%
Core FFO per share (1)
$
2.70
$
2.57
5.1
%
(1) For additional detail on reconciling
items between net income attributable to common stockholders, FFO
and Core FFO, see Definitions and Reconciliations, table 2.
The following table compares the Company’s actual results for
EPS, FFO per share and Core FFO per share for the three months
ended March 31, 2024 to its results for the prior year period:
Q1 2024 Results Compared to Q1
2023
Per Share
EPS
FFO
Core FFO
Q1 2023 per share reported results
$
1.05
$
2.54
$
2.57
Same Store Residential NOI (1)
0.12
0.12
0.12
Development and Other Stabilized
Residential NOI
0.07
0.07
0.07
Overhead and other
(0.02
)
(0.02
)
(0.02
)
Capital markets and transaction
activity
(0.02
)
(0.04
)
(0.04
)
Non-core items (2)
0.06
0.06
—
Real estate gains, depreciation expense
and other
(0.04
)
—
—
Q1 2024 per share reported results
$
1.22
$
2.73
$
2.70
(1) Consists of increases of $0.19 in
revenue and $0.07 in operating expenses.
(2) For detail of non-core items, see
Definitions and Reconciliations, table 2.
The following table compares the Company’s actual results for
EPS, FFO per share and Core FFO per share for the three months
ended March 31, 2024 to its January 2024 outlook:
Q1 2024 Results Compared to
January 2024 Outlook
Per Share
EPS
FFO
Core FFO
Projected per share (1)
$
1.11
$
2.59
$
2.61
Same Store Residential NOI (2)
0.07
0.07
0.07
Development and Other Stabilized
Residential NOI
0.01
0.01
0.01
Overhead and other
(0.01
)
(0.01
)
(0.01
)
Capital markets and transaction
activity
0.02
0.02
0.02
Non-core items (3)
0.05
0.05
—
Real estate gains, depreciation expense
and other
(0.03
)
—
—
Q1 2024 per share reported results
$
1.22
$
2.73
$
2.70
(1) The mid-point of the Company's January
2024 outlook.
(2) Consists of favorable revenue of $0.04
and favorable operating expenses of $0.03.
(3) For detail of non-core items for the
three months ended March 31, 2024, see Definitions and
Reconciliations, table 2.
Same Store Operating Results for the Three Months Ended March
31, 2024 Compared to the Prior Year Period
Same Store total revenue increased $28,005,000, or 4.3%, to
$677,245,000. Same Store Residential revenue increased $26,845,000,
or 4.2%, to $669,227,000. Same Store Residential operating expenses
increased $10,174,000, or 5.2%, to $205,486,000 and Same Store
Residential NOI increased $16,671,000, or 3.7%, to
$463,741,000.
The following table presents percentage changes in Same Store
Residential revenue, operating expenses and NOI for the three
months ended March 31, 2024 compared to the three months ended
March 31, 2023:
Q1 2024 Compared to Q1
2023
Same Store Residential
Revenue (1)
Opex (2)
NOI
% of Q1 2024
NOI
New England
4.8
%
2.7
%
5.8
%
14.1
%
Metro NY/NJ
4.0
%
8.4
%
2.0
%
19.7
%
Mid-Atlantic
3.5
%
7.8
%
1.8
%
15.2
%
Southeast FL
1.7
%
5.4
%
(0.1
)%
3.3
%
Denver, CO
2.9
%
6.6
%
1.5
%
1.6
%
Pacific NW
2.9
%
4.1
%
2.5
%
6.5
%
N. California
1.7
%
4.3
%
0.7
%
16.2
%
S. California
7.5
%
3.1
%
9.4
%
22.3
%
Other Expansion Regions
—
%
6.3
%
(3.1
)%
1.1
%
Total
4.2
%
5.2
%
3.7
%
100.0
%
(1) See full release for additional
detail.
(2) See full release for discussion of
variances.
Development Activity
Consolidated Development
Communities
At March 31, 2024, the Company had 17 consolidated Development
communities under construction that are expected to contain 6,064
apartment homes and 59,000 square feet of commercial space.
Estimated Total Capital Cost at completion for these Development
communities is $2,500,000,000.
Structured Investment Program ("SIP") Activity
As of March 31, 2024, the Company had seven commitments to fund
either mezzanine loans or preferred equity investments for the
development of multifamily projects in the Company's markets, up to
$191,585,000 in the aggregate. At March 31, 2024, the Company's
investment commitments had a weighted average rate of return of
11.5% and a weighted average initial maturity date of December
2026. As of March 31, 2024, the Company had funded $117,321,000 of
these commitments.
Liquidity and Capital Markets
At March 31, 2024, the Company had $287,892,000 in unrestricted
cash and cash equivalents.
As of March 31, 2024, the Company did not have any borrowings
outstanding under its $2,250,000,000 unsecured revolving credit
facility (the "Credit Facility") or its $500,000,000 unsecured
commercial paper note program. As of the date of this release, the
Company had $100,000,000 outstanding under its unsecured commercial
paper note program. The commercial paper program is backstopped by
the Company's commitment to maintain available borrowing capacity
under its Credit Facility in an amount equal to actual borrowings
under the program.
The Company’s annualized Net Debt-to-Core EBITDAre (as defined
in this release) for the first quarter of 2024 was 4.3 times and
Unencumbered NOI (as defined in this release) for the three months
ended March 31, 2024 was 95%.
Second Quarter and Full Year 2024 Financial Outlook
For its second quarter and full year 2024 financial outlook, the
Company expects the following:
Projected EPS, Projected FFO
and Projected Core FFO Outlook (1)
Q2 2024
Full Year 2024
Low
High
Low
High
Projected EPS
$
1.60
—
$
1.70
$
6.98
—
$
7.38
Projected FFO per share
$
2.59
—
$
2.69
$
10.63
—
$
11.03
Projected Core FFO per share
$
2.63
—
$
2.73
$
10.71
—
$
11.11
(1) See Definitions and Reconciliations,
table 8, for reconciliations of Projected FFO per share and
Projected Core FFO per share to Projected EPS.
Full Year 2024 Financial
Outlook
Full Year 2024
vs. Full Year 2023
Low
High
Same Store:
Residential revenue change
2.5
%
—
3.7
%
Residential Opex change
4.4
%
—
6.4
%
Residential NOI change
1.1
%
—
3.1
%
The following table compares the Company’s actual results for
EPS, FFO per share and Core FFO per share for the first quarter
2024 to the mid-point of its second quarter 2024 financial
outlook:
Q1 2024 Results Compared to Q2
2024 Outlook
Per Share
EPS
FFO
Core FFO
Q1 2024 per share reported results
$
1.22
$
2.73
$
2.70
Same Store Residential revenue
0.03
0.03
0.03
Same Store Residential Opex
(0.05
)
(0.05
)
(0.05
)
Development and Other Stabilized
Residential NOI
0.02
0.02
0.02
Capital markets and transaction
activity
(0.02
)
(0.02
)
(0.02
)
Non-core items (1)
(0.07
)
(0.07
)
—
Gain on sale of real estate and
depreciation expense
0.52
—
—
Projected per share - Q2 2024 outlook
(2)
$
1.65
$
2.64
$
2.68
(1) For detail of non-core items, see
Definitions and Reconciliations, table 2 and table 8.
(2) Represents the mid-point of the
Company's outlook.
The following table compares the mid-point of the Company’s
April 2024 full year outlook for EPS, FFO per share and Core FFO
per share to its January 2024 full year outlook:
April 2024 Full Year Outlook
Compared
to January 2024 Full Year
Outlook
Per Share
EPS
FFO
Core FFO
Projected per share - January 2024 outlook
(1)
$
6.52
$
10.67
$
10.78
Same Store Residential revenue
0.10
0.10
0.10
Same Store Residential Opex
0.01
0.01
0.01
Development and Other Stabilized
Residential NOI
0.01
0.01
0.01
Capital markets and transaction
activity
0.01
0.01
0.01
Non-core items (2)
0.03
0.03
—
Gain on sale of real estate and
depreciation expense
0.50
—
—
Projected per share - April 2024 outlook
(1)
$
7.18
$
10.83
$
10.91
(1) Represents the mid-point of the
Company's outlook.
(2) For detail of non-core items, see
Definitions and Reconciliations, table 8.
Other Matters
The Company will hold a conference call on April 26, 2024 at
11:00 AM ET to review and answer questions about this release, its
first quarter 2024 results, the Attachments (described below) and
related matters. To participate on the call, dial 877-407-9716.
To hear a replay of the call, which will be available from April
26, 2024 at 4:00 PM ET to May 26, 2024, dial 844-512-2921 and use
replay passcode: 13740497. A webcast of the conference call will
also be available at https://investors.avalonbay.com, 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 https://investors.avalonbay.com. To
receive future press releases via e-mail, please submit a request
through https://investors.avalonbay.com/other-information.
In addition to the Attachments, the Company is providing a
teleconference presentation that will be available on the Company's
website at https://investors.avalonbay.com subsequent to this
release and before the market opens on April 26, 2024.
About AvalonBay Communities, Inc.
As of March 31, 2024, the Company owned or held a direct or
indirect ownership interest in 299 apartment communities containing
90,673 apartment homes in 12 states and the District of Columbia,
of which 17 communities were under development. The Company is an
equity REIT in the business of developing, redeveloping, acquiring
and managing apartment communities in leading metropolitan areas in
New England, the New York/New Jersey Metro area, the Mid-Atlantic,
the Pacific Northwest, and Northern and Southern California, as
well as in the Company's expansion regions 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 https://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. The Company intends
such forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995. You can identify
forward-looking statements by the Company’s use of the words
“believe,” “expect,” “anticipate,” “intend,” “estimate,” “assume,”
“project,” “plan,” “may,” “shall,” “will,” “pursue,” “outlook” and
other similar expressions in this release that predict or indicate
future events and trends and that do not report historical matters.
These statements include, among other things, statements regarding
the Company’s intent, belief, forecasts, assumptions or
expectations with respect to: the Company’s potential development,
redevelopment, acquisition or disposition of communities; the
timing and cost of completion of apartment communities under
construction, reconstruction, development or redevelopment; the
timing of lease-up, occupancy and stabilization of apartment
communities; the pursuit of land on which the Company is
considering future development; the anticipated operating
performance of the Company’s communities; cost, yield, revenue, NOI
and earnings estimates; the impact of landlord-tenant laws and rent
regulations; the Company’s expansion into new regions; the
Company’s declaration or payment of dividends; the Company’s joint
venture activities; the Company’s policies regarding investments,
indebtedness, acquisitions, dispositions, financings and other
matters; the Company’s qualification as a REIT under the Code; the
real estate markets in Metro New York/New Jersey, Northern and
Southern California, Denver, Colorado, Southeast Florida, Dallas
and Austin, Texas and Charlotte and Raleigh-Durham, North Carolina,
and markets in selected states in the Mid-Atlantic, New England and
Pacific Northwest regions of the United States and in general; the
availability of debt and equity financing; interest rates; general
economic conditions, including the potential impacts from current
economic conditions, including rising interest rates and general
price inflation; trends affecting the Company’s financial condition
or results of operations; regulatory changes that may affect the
Company; and the impact of legal proceedings.
The Company cannot assure the future results or outcome of the
matters described in these statements; rather, these statements
merely reflect the Company’s current expectations of the
approximate outcomes of the matters discussed. The Company does not
undertake a duty to update these forward-looking statements, and
therefore they may not represent the Company’s estimates and
assumptions after the date of this release. You should not rely on
forward-looking statements because they involve known and unknown
risks, uncertainties and other factors, some of which are beyond
the Company’s control. These risks, uncertainties and other factors
may cause the Company’s actual results, performance or achievements
to differ materially from the anticipated future results,
performance or achievements expressed or implied by these
forward-looking statements. You should carefully review the
discussion under Part I, Item 1A. “Risk Factors” of the Company’s
Form 10-K for the fiscal year ended December 31, 2023 and Part II,
Item 1A. “Risk Factors” in subsequent quarterly reports on Form
10-Q for further discussion of risks associated with
forward-looking statements.
Some of the factors that could cause the Company’s actual
results, performance or achievements to differ materially from
those expressed or implied by these forward-looking statements
include, but are not limited to, the following: the Company may
fail to secure development opportunities due to an inability to
reach agreements with third parties to obtain land at attractive
prices or to obtain desired zoning and other local approvals; the
Company may abandon or defer development opportunities for a number
of reasons, including changes in local market conditions which make
development less desirable, increases in costs of development,
increases in the cost of capital or lack of capital availability,
resulting in losses; construction costs of a community may exceed
the Company’s original estimates; the Company may not complete
construction and lease-up of communities under development or
redevelopment on schedule, resulting in increased interest costs
and construction costs and a decrease in the Company’s expected
rental revenues; occupancy rates and market rents may be adversely
affected by competition and local economic and market conditions
which are beyond the Company’s control; financing may not be
available on favorable terms or at all, and the Company’s cash
flows from operations and access to cost-effective capital may be
insufficient for the development of the Company’s pipeline, which
could limit the Company’s pursuit of opportunities; the impact of
new landlord-tenant laws and rent regulations may be greater than
expected; an outbreak of disease or other public health event may
affect the multifamily industry and general economy, including from
measures taken by businesses and the government and the preferences
of consumers and businesses for living and working arrangements
both during and after such an event; the Company’s cash flows may
be insufficient to meet required payments of principal and
interest, and the Company may be unable to refinance existing
indebtedness or the terms of such refinancing may not be as
favorable as the terms of existing indebtedness; the Company may be
unsuccessful in its management of joint ventures and the REIT
vehicles that are used with certain joint ventures; laws and
regulations implementing rent control or rent stabilization, or
otherwise limiting the Company’s ability to increase rents, charge
fees or evict tenants, may impact its revenue or increase costs;
the Company’s expectations, estimates and assumptions as of the
date of this filing regarding legal proceedings are subject to
change; the Company’s assumptions and expectations in its financial
outlook may prove to be too optimistic; the possibility that the
Company may choose to pay dividends in its stock instead of cash,
which may result in stockholders having to pay taxes with respect
to such dividends in excess of the cash received, if any; and
investments made under the SIP in either mezzanine debt or
preferred equity of third-party multifamily development may not be
repaid as expected or the development may not be completed on
schedule, which could require the Company to engage in litigation,
foreclosure actions, and/or first party project completion to
recover its investment, which may not be recovered in full or at
all in such event.
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 11, Definitions and Reconciliations of
Non-GAAP Financial Measures and Other Terms. Attachment 11 is
included in the full earnings release available at the Company’s
website at https://investors.avalonbay.com. This wire distribution
includes only the following definitions and reconciliations.
Average Monthly Revenue per Occupied
Home is calculated by the Company as Residential 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.
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 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
Q1
2024
Net income
$
173,557
Interest expense and loss on
extinguishment of debt
59,439
Income tax benefit
(22
)
Depreciation expense
212,269
EBITDA
$
445,243
Casualty loss
2,935
Loss on sale of communities
70
Unconsolidated entity EBITDAre adjustments
(1)
3,879
EBITDAre
$
452,127
Unconsolidated entity gains, net
(8,385
)
Structured Investment Program loan
reserve
58
Advocacy contributions
75
Hedge accounting activity
39
Executive transition compensation
costs
104
Severance related costs
211
Expensed transaction, development and
other pursuit costs, net of recoveries
3,134
Other real estate activity
(141
)
Legal settlements and costs
864
Core EBITDAre
$
448,086
(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.
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 generally
considered by management to be appropriate 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,
including those from a change in control. FFO can help one compare
the operating and financial performance of a real estate company
between periods or as compared to different companies because
adjustments such as (i) gains or losses on sales of previously
depreciated property or (ii) real estate depreciation may impact
comparability between companies as the amount and timing of these
or similar items can vary among owners of identical assets in
similar condition based on historical cost accounting and useful
life estimates. 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 with the comparison of core
operating 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 2
Q1
Q1
2024
2023
Net income attributable to common
stockholders
$
173,449
$
146,902
Depreciation - real estate assets,
including joint venture adjustments
211,347
203,280
Distributions to noncontrolling
interests
—
12
Loss on sale of previously depreciated
real estate
70
13
Casualty loss on real estate
2,935
5,051
FFO attributable to common
stockholders
387,801
355,258
Adjusting items:
Unconsolidated entity gains, net (1)
(8,385
)
(3,056
)
Structured Investment Program loan reserve
(2)
58
(19
)
Hedge accounting activity
39
228
Advocacy contributions
75
—
Executive transition compensation
costs
104
347
Severance related costs
211
1,173
Expensed transaction, development and
other pursuit costs, net of recoveries
3,134
2,451
Other real estate activity
(141
)
(129
)
For-sale condominium imputed carry cost
(3)
20
255
Legal settlements and costs
864
(98
)
Income tax (benefit) expense (4)
(22
)
3,560
Core FFO attributable to common
stockholders
$
383,758
$
359,970
Weighted average common shares outstanding
- diluted
142,222,755
140,023,810
Earnings per common share - diluted
$
1.22
$
1.05
FFO per common share - diluted
$
2.73
$
2.54
Core FFO per common share - diluted
$
2.70
$
2.57
(1) Amounts consist primarily of net
unrealized gains on technology investments.
(2) Changes are the expected credit losses
associated with the Company's lending commitments primarily under
its SIP. The timing and amount of any actual losses that will be
incurred, if any, is to be determined.
(3) Represents the imputed carry cost of
the for-sale residential condominiums at The Park Loggia. The
Company computes this adjustment by multiplying the Total Capital
Cost of completed and unsold for-sale residential condominiums by
the Company's weighted average unsecured debt effective interest
rate.
(4) Amount for 2023 is primarily for the
recognition of taxes associated with The Park Loggia
dispositions.
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 March
31, 2024 is as follows (dollars in thousands):
TABLE 3
Core EBITDAre (1)
$
448,086
Interest expense (2)
$
59,439
Interest Coverage
7.5 times
(1) For additional detail, see Definitions
and Reconciliations, table 1.
(2) Excludes the impact of non-core hedge
accounting activity.
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 Credit Facility and commercial paper
program) that is consolidated for financial reporting purposes,
less consolidated cash and restricted cash, divided by annualized
first quarter 2024 Core EBITDAre. A calculation of Net Debt-to-Core
EBITDAre is as follows (dollars in thousands):
TABLE 4
Total debt principal (1)
$
8,043,242
Cash and cash equivalents and restricted
cash
(385,234
)
Net debt
$
7,658,008
Core EBITDAre (2)
$
448,086
Core EBITDAre, annualized
$
1,792,344
Net Debt-to-Core EBITDAre
4.3 times
(1) Balance at March 31, 2024 excludes
$42,194 of debt discount and deferred financing costs as reflected
in unsecured notes, net, and $17,777 of debt discount and deferred
financing costs as reflected in notes payable, net, 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 on extinguishment of debt,
net, general and administrative expense, income from unconsolidated
investments, depreciation expense, income tax (benefit) expense,
casualty loss, loss (gain) on sale of communities, other real
estate 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 5
Q1
Q1
Q4
2024
2023
2023
Net income
$
173,557
$
146,775
$
242,066
Property management and other indirect
operating expenses, net of corporate income
35,204
33,936
34,706
Expensed transaction, development and
other pursuit costs, net of recoveries
4,245
2,992
10,267
Interest expense, net
54,766
56,821
49,471
General and administrative expense
20,331
20,400
17,992
Income from unconsolidated investments
(10,847
)
(4,845
)
(1,709
)
Depreciation expense
212,269
204,743
210,694
Income tax (benefit) expense
(22
)
3,560
2,438
Casualty loss
2,935
5,051
568
Loss (gain) on sale of communities
70
13
(77,994
)
Other real estate activity
(141
)
(129
)
533
NOI from real estate assets sold or held
for sale
(426
)
(6,950
)
(979
)
NOI
491,941
462,367
488,053
Commercial NOI
(8,284
)
(8,553
)
(8,722
)
Residential NOI
$
483,657
$
453,814
$
479,331
Residential NOI
Same Store:
New England
$
65,298
$
61,735
$
64,949
Metro NY/NJ
91,313
89,479
91,122
Mid-Atlantic
70,678
69,438
71,565
Southeast FL
15,491
15,512
14,441
Denver, CO
7,353
7,243
7,213
Pacific NW
29,927
29,202
29,764
N. California
75,084
74,589
75,798
S. California
103,347
94,452
101,888
Other Expansion Regions
5,250
5,420
5,259
Total Same Store
463,741
447,070
461,999
Other Stabilized
15,563
7,034
15,150
Development/Redevelopment
4,353
(290
)
2,182
Residential NOI
$
483,657
$
453,814
$
479,331
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 6
Q1
Q1
Q4
2024
2023
2023
Revenue from real estate assets sold or
held for sale
$
690
$
9,709
$
1,456
Operating expenses from real estate assets
sold or held for sale
(264
)
(2,759
)
(477
)
NOI from real estate assets sold or held
for sale
$
426
$
6,950
$
979
Commercial NOI is composed of the following components (in
thousands):
TABLE 7
Q1
Q1
Q4
2024
2023
2023
Commercial Revenue
$
10,112
$
10,228
$
10,573
Commercial Operating Expenses
(1,828
)
(1,675
)
(1,851
)
Commercial NOI
$
8,284
$
8,553
$
8,722
Other Stabilized is composed of
completed consolidated communities that the Company owns, which
have Stabilized Operations as of January 1, 2024, or which were
acquired subsequent to January 1, 2023. 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 second quarter and full
year 2024 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 8
Low Range
High Range
Projected EPS (diluted) - Q2 2024
$
1.60
$
1.70
Depreciation (real estate related)
1.48
1.48
Gain on sale of communities
(0.49
)
(0.49
)
Projected FFO per share (diluted) - Q2
2024
2.59
2.69
Expensed transaction, development and
other pursuit costs, net of recoveries
0.01
0.01
Advocacy contributions
0.03
0.03
Projected Core FFO per share (diluted) -
Q2 2024
$
2.63
$
2.73
Projected EPS (diluted) - Full Year
2024
$
6.98
$
7.38
Depreciation (real estate related)
5.97
5.97
Gain on sale of communities
(2.34
)
(2.34
)
Casualty loss on real estate
0.02
0.02
Projected FFO per share (diluted) - Full
Year 2024
10.63
11.03
Unconsolidated entity gains, net
(0.05
)
(0.05
)
Structured Investment Program loan
reserve
0.01
0.01
Expensed transaction, development and
other pursuit costs, net of recoveries
0.05
0.05
Legal settlements and costs
0.02
0.02
Advocacy contributions
0.05
0.05
Projected Core FFO per share (diluted) -
Full Year 2024
$
10.71
$
11.11
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 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.
Residential represents results
attributable to the Company's apartment rental operations,
including parking and other ancillary Residential revenue.
Residential Revenue with Concessions on a
Cash Basis is considered by the Company to be a supplemental
measure to Residential revenue in conformity with GAAP to help
investors evaluate the impact of both current and historical
concessions on GAAP-based Residential revenue and to more readily
enable comparisons to revenue as reported by other companies. In
addition, Residential Revenue with Concessions on a Cash Basis
allows an investor to understand the historical trend in cash
concessions.
A reconciliation of Same Store Residential revenue in conformity
with GAAP to Residential Revenue with Concessions on a Cash Basis
is as follows (dollars in thousands):
TABLE 9
Q1
Q1
Q4
2024
2023
2023
Residential revenue (GAAP basis)
$
669,227
$
642,382
$
664,177
Residential concessions amortized
4,318
3,409
4,460
Residential concessions granted
(3,403
)
(3,675
)
(4,614
)
Residential Revenue with Concessions on a
Cash Basis
$
670,142
$
642,116
$
664,023
Q1 2024 vs. Q1
2023
Q1 2024 vs. Q4
2023
% change -- GAAP revenue
4.2
%
0.8
%
% change -- cash revenue
4.4
%
0.9
%
Same Store is composed of
consolidated communities where a comparison of operating results
from the prior year to the current year is meaningful as these
communities were owned and had Stabilized Operations, as defined
below, as of the beginning of the respective prior year period.
Therefore, for 2024 operating results, Same Store is composed of
consolidated communities that have Stabilized Operations as of
January 1, 2023, 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 is defined as
operations of a community that occur after 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 and a
contingency estimate, 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 period 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.
Uncollectible lease revenue and government
rent relief
The following table provides uncollectible Residential lease
revenue as a percentage of total Residential revenue in the
aggregate and excluding amounts recognized from government rent
relief programs in each respective period. Government rent relief
reduces the amount of uncollectible Residential lease revenue. The
Company expects the amount of rent relief recognized to continue to
decline in 2024 absent funding from the Federal government.
TABLE 10
Same Store Uncollectible
Residential Lease Revenue
Q1
Q1
Q4
2024
2023
2023
Total
Excluding Rent Relief
Total
Excluding Rent Relief
Total
Excluding Rent Relief
New England
0.2 %
0.6 %
0.9 %
1.5 %
0.9 %
1.1 %
Metro NY/NJ
2.1 %
2.4 %
2.4 %
3.5 %
2.9 %
3.1 %
Mid-Atlantic
2.3 %
2.6 %
2.6 %
2.7 %
2.5 %
2.7 %
Southeast FL
2.4 %
2.4 %
2.5 %
3.4 %
2.5 %
2.6 %
Denver, CO
1.2 %
1.4 %
1.2 %
1.5 %
1.1 %
1.1 %
Pacific NW
0.9 %
1.0 %
0.9 %
1.3 %
1.1 %
1.2 %
N. California
1.1 %
1.2 %
1.7 %
1.9 %
1.2 %
1.3 %
S. California
2.1 %
2.4 %
4.8 %
5.0 %
2.2 %
2.4 %
Other Expansion Regions
1.2 %
1.2 %
0.9 %
0.9 %
1.3 %
1.3 %
Total Same Store
1.6 %
1.9 %
2.5 %
3.0 %
1.9 %
2.1 %
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 March 31,
2024 as a percentage of total NOI generated by real estate assets.
The Company believes that current and prospective unsecured
creditors of the Company view Unencumbered NOI as one indication of
the borrowing capacity of the Company. Therefore, when reviewed
together with the Company’s Interest Coverage, EBITDA and cash flow
from operations, the Company believes that investors and creditors
view Unencumbered NOI as a useful supplemental measure for
determining the financial flexibility of an entity. A calculation
of Unencumbered NOI for the three months ended March 31, 2024 is as
follows (dollars in thousands):
TABLE 11
Q1 2024
NOI
Residential NOI:
Same Store
$
463,741
Other Stabilized
15,563
Development/Redevelopment
4,353
Total Residential NOI
483,657
Commercial NOI
8,284
NOI from real estate assets sold or held
for sale
426
Total NOI generated by real estate
assets
492,367
Less NOI on encumbered assets
(24,850
)
NOI on unencumbered assets
$
467,517
Unencumbered NOI
95
%
Copyright © 2024 AvalonBay Communities, Inc.
All Rights Reserved
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version on businesswire.com: https://www.businesswire.com/news/home/20240424045290/en/
Jason Reilley, Vice President of Investor Relations, at
703-317-4681
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