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Section 1: 8-K (8-K)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
 
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
Date of Report (Date of earliest event reported):  April 24, 2019
  
AVALONBAY COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
 
 
Commission file number 1-12672
  
Maryland
 
77-0404318
 
(State or other jurisdiction of
 
(I.R.S. Employer 
 
incorporation or organization)
 
Identification No.)
 
 
Ballston Tower
671 N. Glebe Rd, Suite 800
Arlington, Virginia 22203
(Address of principal executive offices)(Zip code)
 
(703) 329-6300
(Registrant’s telephone number, including area code)
 
 
(Former name, if changed since last report)
 

   
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
o  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))


Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.
                    
Emerging growth company o    

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o





Item 2.02.  Results of Operations and Financial Condition.
 
On April 24, 2019, AvalonBay Communities, Inc. issued a press release announcing its first quarter 2019 operating results. That release referred to certain attachments with supplemental information that were available on the Company's website. The full text of the press release, including the supplemental information and attachments referred to within the release, are furnished as Exhibit 99.1 and Exhibit 99.2 hereto.
 
Item 9.01.  Financial Statements and Exhibits.
 
(c)  Exhibits.
 
99.1
Press Release of AvalonBay Communities, Inc. dated April 24, 2019, including attachments.
 
 
99.2
Supplemental discussion of first quarter 2019 operating results dated April 24, 2019, including attachments.
 
 
 
[Remainder of page left blank intentionally]





SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be filed on its behalf by the undersigned hereunto duly authorized.
 
 
 
AVALONBAY COMMUNITIES, INC.
 
 
 
 
 
 
Dated: April 24, 2019
By:
/s/ Kevin P. O’Shea
 
 
 
Kevin P. O’Shea
 
 
 
Chief Financial Officer






Exhibit Index
 
99.1

 
 
99.2




(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit

Exhibit 99.1
397649299_avbpressreleaseheader1a13.jpgFor Immediate News Release
April 24, 2019


AVALONBAY COMMUNITIES, INC. ANNOUNCES
FIRST QUARTER 2019 OPERATING RESULTS


(Arlington, VA) AvalonBay Communities, Inc. (NYSE: AVB) (the “Company”) reported today that Net Income Attributable to Common Stockholders for the three months ended March 31, 2019 was $170,366,000. This resulted in an increase in Earnings per Share – diluted (“EPS”) for the three months ended March 31, 2019 of 19.4% to $1.23 from $1.03 for the prior year period.

Funds from Operations attributable to common stockholders - diluted (“FFO”) per share for the three months ended March 31, 2019 increased 6.5% to $2.31 from $2.17 for the prior year period. Core FFO per share (as defined in this release) for the three months ended March 31, 2019 increased 5.5% to $2.30 from $2.18 for the prior year period.

The following table compares the Company’s actual results for EPS, FFO per share and Core FFO per share for the three months ended March 31, 2019 to its results for the prior year period:
 
 
Q1 2019 Results Compared to Q1 2018
 
Per Share (1)
 
EPS
FFO
Core FFO
Q1 2018 per share reported results
$
1.03

$
2.17

$
2.18

Established and Redevelopment Community NOI
0.12

0.12

0.12

Development and Other Stabilized Community NOI
0.08

0.08

0.07

Capital markets activity
(0.06
)
(0.06
)
(0.06
)
Overhead expense and other


(0.02
)
Joint venture income


0.01

Gain on sale of real estate and depreciation expense
0.06



Q1 2019 per share reported results
$
1.23

$
2.31

$
2.30

 
 
 
 
(1) For additional detail on reconciling items between EPS, FFO and Core FFO, see Definitions and Reconciliations, table 5.
 
 
Established Communities Operating Results for the Three Months Ended March 31, 2019 Compared to the Prior Year Period (a) 

For Established Communities, total revenue increased $15,593,000, or 3.5%, to $460,273,000. Operating expenses for Established Communities increased $228,000, or 0.2%, to $128,820,000. NOI for Established Communities increased $15,365,000, or 4.9%, to $331,453,000. Rental revenue for Established Communities increased 3.4% as a result of an increase in Average Rental Rates of 3.5%, partially offset by a decrease in Economic Occupancy of 0.1%.

The following table reflects the percentage changes in rental revenue, operating expenses and NOI for Established Communities for the three months ended March 31, 2019 compared to the three months ended March 31, 2018:
 
Q1 2019 Compared to Q1 2018
 
 
Rental
Revenue (1)(2)
 
Opex
(2)(3)
 
NOI
 
% of
NOI (4)
New England
 
3.2
%
 
 %
 
5.1
%
 
14.2
%
Metro NY/NJ
 
3.2
%
 
1.2
 %
 
4.1
%
 
22.2
%
Mid-Atlantic
 
3.2
%
 
0.2
 %
 
4.5
%
 
16.0
%
Pacific NW
 
4.8
%
 
(3.5
)%
 
8.5
%
 
5.6
%
No. California
 
3.5
%
 
(2.0
)%
 
5.2
%
 
21.1
%
So. California
 
3.7
%
 
1.9
 %
 
4.4
%
 
20.9
%
   Total
 
3.4
%
 
0.2
 %
 
4.9
%
 
100.0
%
 
 
 
 
 
 
 
 
 
(1) See full release for additional detail.
(2) 2018 results have been adjusted to reflect uncollectible lease revenue as an adjustment to revenue. See Definitions and Reconciliations, table 1.
(3) See full release for discussion of variances.
(4) Represents % of total NOI for Q1 2019 in the presented regions, including amounts related to communities that have been sold or that are classified as held for sale.
 

(a) Historically, the Company presented charges related to uncollectible lease revenue in operating expenses. With the Company’s adoption of ASU 2016-02, Leases, the Company is presenting such charges as an adjustment to revenue in its consolidated GAAP financial statements on a prospective basis, beginning with the three months ended March 31, 2019. However, for reported segment financial information, including for Established Communities, the Company has also included such charges as an adjustment to revenue for all prior year periods presented in order to provide comparability. Refer to Attachment 12, table 1, for additional detail and a reconciliation. 
Copyright © 2019 AvalonBay Communities, Inc. All Rights Reserved
1



Development Activity

During the three months ended March 31, 2019, the Company completed the development of two communities:

Avalon at the Hingham Shipyard II, located in Hingham, MA; and
Avalon Sudbury, located in Sudbury, MA.

These communities contain an aggregate of 440 apartment homes and were constructed for an aggregate Total Capital Cost of $152,000,000.

At March 31, 2019 (excluding 15 West 61st Street, which is expected to be developed for a Total Capital Cost of $620,000,000), the Company had 19 Development Communities under construction that in the aggregate are expected to contain 6,170 apartment homes and 87,000 square feet of retail space. Estimated Total Capital Cost at completion for these Development Communities is $2,233,000,000.

The projected Total Capital Cost of Development Rights at March 31, 2019 increased to $4.2 billion from $4.1 billion at December 31, 2018.

Acquisition Activity

During the three months ended March 31, 2019, the Company acquired the Ridge at Wheatlands, located in Aurora, CO, containing 338 apartment homes for a purchase price of $91,250,000.

Disposition Activity

During the three months ended March 31, 2019, the Company sold Oakwood Arlington, a wholly-owned operating community, located in Arlington, VA. Oakwood Arlington contains 184 apartment homes and was sold for $70,000,000, resulting in a gain in accordance with GAAP of $16,382,000 and an Economic Gain of $6,183,000.

In April 2019, the Company sold Archstone Toscano, located in Houston, TX. Archstone Toscano contains 474 apartment homes and was sold for $98,000,000.

 
Liquidity and Capital Markets

In February 2019, the Company amended and restated its unsecured revolving credit facility to increase its borrowing capacity from $1,500,000,000 to $1,750,000,000. In addition, the term of the credit facility was extended from April 2020 to February 2024. As part of the amendment and restatement, the Company decreased its current borrowing spread over LIBOR to 0.775% from 0.825%, and maintained its annual facility fee at 0.125%.

At March 31, 2019, the Company did not have any borrowings outstanding under its $1,750,000,000 unsecured credit facility, and had $195,207,000 in unrestricted cash and cash in escrow.

During the three months ended March 31, 2019, the Company amended and restated its $250,000,000 variable rate unsecured term loan that it originally entered into in February 2017, which consists of two tranches. The first tranche of $100,000,000 matures in February 2022, with stated pricing of LIBOR plus 0.90%, which did not change. The second tranche of $150,000,000 matures in February 2024, with stated pricing of LIBOR plus 0.85%, which decreased from LIBOR plus 1.50%.

In addition, during the three months ended March 31, 2019, the Company sold 755,054 shares of common stock at an average sales price of $198.26 per share, for net proceeds of $147,450,000 under the current continuous equity program established in December 2015.

The Company’s annualized Net Debt-to-Core EBITDAre (as defined in this release) for the first quarter of 2019 was 4.6 times.

Second Quarter Conference Schedule

The Company is scheduled to participate in NAREIT's REITWeek Conference in New York, NY, from June 4 - 6, 2019. During this conference, management may discuss the Company's current operating environment; operating trends; development, redevelopment, disposition and acquisition activity; portfolio strategy and other business and financial matters affecting the Company. Details on how to access related materials will be available beginning June 3, 2019 on the Company's website at http:// www.avalonbay.com/events.


Copyright © 2019 AvalonBay Communities, Inc. All Rights Reserved
2







Other Matters

The Company will hold a conference call on April 25, 2019 at 1:00 PM ET to review and answer questions about this release, its first quarter 2019 results, the Attachments (described below) and related matters. To participate on the call, dial 888-256-1007 and use conference id: 7961532.

To hear a replay of the call, which will be available from April 25, 2019 at 6:00 PM ET to May 2, 2019 at 6:00 PM ET, dial 888-203-1112 and use conference id: 7961532. A webcast of the conference call will also be available at http://www.avalonbay.com/earnings, and an on-line playback of the webcast will be available for at least seven days following the call.
 
The Company produces Earnings Release Attachments (the "Attachments") that provide detailed information regarding operating, development, redevelopment, disposition and acquisition activity. These Attachments are considered a part of this earnings release and are available in full with this earnings release via the Company's website at http://www.avalonbay.com/earnings. To receive future press releases via e-mail, please submit a request through http://www.avalonbay.com/email.

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 April 25, 2019. These supplemental materials will be available on the Company's website for 30 days following the earnings call.

About AvalonBay Communities, Inc.

As of March 31, 2019, the Company owned or held a direct or indirect ownership interest in 291 apartment communities containing 85,313 apartment homes in 12 states and the District of Columbia, of which 19 communities were under development and nine 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 primarily in New England, the New York/New Jersey Metro area, the Mid-Atlantic, the Pacific Northwest, and the Northern and Southern California regions of the United States. More information may be found on the Company’s website at http://www.avalonbay.com. For additional information, please contact Jason Reilley, Vice President of Investor Relations, at 703-317-4681.

 
Forward-Looking Statements

This release, including its Attachments, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements, which you can identify by the Company’s use of words such as “expects,” “plans,” “estimates,” “anticipates,” “projects,” “intends,” “believes,” “outlook” and similar expressions that do not relate to historical matters, are based on the Company’s expectations, forecasts and assumptions at the time of this release, which may not be realized and involve risks and uncertainties that cannot be predicted accurately or that might not be anticipated. These could cause actual results to differ materially from those expressed or implied by the forward-looking statements. Risks and uncertainties that might cause such differences include the following, among others: we may abandon development or redevelopment opportunities for which we have already incurred costs; adverse capital and credit market conditions may affect our access to various sources of capital and/or cost of capital, which may affect our business activities, earnings and common stock price, among other things; changes in local employment conditions, demand for apartment homes, supply of competitive housing products, and other economic conditions may result in lower than expected occupancy and/or rental rates and adversely affect the profitability of our communities; delays in completing development, redevelopment and/or lease-up may result in increased financing and construction costs and may delay and/or reduce the profitability of a community; debt and/or equity financing for development, redevelopment or acquisitions of communities may not be available or may not be available on favorable terms; we may be unable to obtain, or experience delays in obtaining, necessary governmental permits and authorizations; expenses may result in communities that we develop or redevelop failing to achieve expected profitability; our assumptions concerning risks relating to our lack of control of joint ventures and our abilities to successfully dispose of certain assets may not be realized; and our assumptions and expectations in our financial outlook may prove to be too optimistic. 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, 2018 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.


Copyright © 2019 AvalonBay Communities, Inc. All Rights Reserved
3







The Company does not undertake a duty to update forward-looking statements, including its expected 2019 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.

Copyright © 2019 AvalonBay Communities, Inc. All Rights Reserved
4








 Definitions and Reconciliations

Non-GAAP financial measures and other capitalized terms, as used in this earnings release, are defined, reconciled and further explained on Attachment 12, Definitions and Reconciliations of Non-GAAP Financial Measures and Other Terms. Attachment 12 is included in the full earnings release available at the Company’s website at http://www.avalonbay.com/earnings. This wire distribution includes only the following definitions and reconciliations:
 
Average Rental Rates are calculated by the Company as rental revenue in accordance with GAAP, divided by the weighted average number of occupied apartment homes.

Business Segment Operating Results included in this release presents the Company’s business segment financial information for all reporting periods on a comparable basis, with the charge for uncollectible lease revenue included as an adjustment to revenue. Historically for periods prior to January 1, 2019, the Company presented charges related to uncollectible lease revenue in operating expenses. With the Company’s adoption of ASU 2016-02, Leases, the Company is presenting such charges as an adjustment to revenue in its consolidated GAAP financial statements on a prospective basis, beginning with the three months ended March 31, 2019. However, for reported segment financial information, including for Established Communities, the Company has also included such charges as an adjustment to revenue for all prior year periods presented in order to provide comparability.

Established Communities

A reconciliation of total revenue, rental revenue and operating expenses for Established Communities, as presented in this release, to results prior to the adjustment for uncollectible lease revenue is as follows (dollars in thousands):

TABLE 1
 
 
Q1
 
Q1
 
 
 
Q4
 
 
 
 
2019
 
2018
 
% Change
 
2018
 
% Change
Total revenue, excluding uncollectible lease revenue
 
$
462,180

 
$
448,008

 
3.2
 %
 
$
461,600

 
0.1
 %
Uncollectible lease revenue
 
(1,907
)
 
(3,328
)
 
(42.7
)%
 
(2,052
)
 
(7.1
)%
Total revenue, including uncollectible lease revenue
 
460,273

 
444,680

 
3.5
 %
 
459,548

 
0.2
 %
 
 
 
 
 
 
 
 
 
 
 
Rental revenue, excluding uncollectible lease revenue
 
461,713

 
447,823

 
3.1
 %
 
461,267

 
0.1
 %
Uncollectible lease revenue
 
(1,907
)
 
(3,328
)
 
(42.7
)%
 
(2,052
)
 
(7.1
)%
Rental revenue, including uncollectible lease revenue
 
459,806

 
444,495

 
3.4
 %
 
459,215

 
0.1
 %
 
 
 
 
 
 
 
 
 
 
 
Operating expenses, excluding uncollectible lease revenue
 
128,820

 
128,592

 
0.2
 %
 
127,342

 
1.2
 %
Uncollectible lease revenue
 
1,907

 
3,328

 
(42.7
)%
 
2,052

 
(7.1
)%
Operating expenses, including uncollectible lease revenue
 
$
130,727

 
$
131,920

 
(0.9
)%
 
$
129,394

 
1.0
 %
 
 
 
 
 
 
 
 
 
 
 
 


Other Business Segments

A reconciliation of rental revenue and operating expenses for other business segments, as presented in this release, to results prior to the adjustment for uncollectible lease revenue is as follows (dollars in thousands):


5




TABLE 2
 
 
Q4 2018
 
 
Other Stabilized
 
Redevelopment
 
Development
Rental revenue, excluding uncollectible lease revenue
 
$
64,461

 
$
32,086

 
$
2,282

Uncollectible lease revenue
 
(734
)
 
(147
)
 
(5
)
Rental revenue, including uncollectible lease revenue
 
63,727

 
31,939

 
2,277

 
 
 
 
 
 
 
Operating expenses, excluding uncollectible lease revenue
 
21,213

 
9,738

 
1,165

Uncollectible lease revenue
 
734

 
147

 
5

Operating expenses, including uncollectible lease revenue
 
$
21,947

 
$
9,885

 
$
1,170

 
 
 
 
 
 
 
 

Development Communities are communities that are either currently under construction, or were under construction and were completed during the current year. These communities may be partially or fully complete and operating.
 
Development Rights are development opportunities in the early phase of the development process for which the Company either has an option to acquire land or enter into a leasehold interest, for which the Company is the buyer under a long-term conditional contract to purchase land, where the Company controls the land through a ground lease or owns land to develop a new community, or where the Company is the designated developer in a public-private partnership. The Company capitalizes related pre-development costs incurred in pursuit of new developments for which the Company currently believes future development is probable.

Economic Occupancy (“Ec Occ”) is defined as total possible revenue less vacancy loss as a percentage of total possible revenue. Total possible revenue (also known as “gross potential”) is determined by valuing occupied units at contract rates and vacant units at Market Rents. Vacancy loss is determined by valuing vacant units at current Market Rents. By measuring vacant apartments at their Market Rents, Economic Occupancy takes into account the fact that apartment homes of different sizes and locations within a community have different economic impacts on a community’s gross revenue.

Economic Gain (Loss) is calculated by the Company as the gain (loss) on sale in accordance with GAAP, less accumulated depreciation through the date of sale and any other non-cash adjustments that may be required under GAAP accounting. Management generally considers Economic Gain (Loss) to be an appropriate supplemental measure to gain (loss) 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 (Loss) for disposed communities is based on their respective final settlement statements. A reconciliation of the Economic Gain (Loss) to the gain on sale in accordance with GAAP for the wholly-owned operating community disposed during the three months ended March 31, 2019 is as follows (dollars in thousands):

TABLE 3
 
Q1 2019
GAAP Gain
$
16,382

 
 
Accumulated Depreciation and Other
(10,199
)
 
 
Economic Gain (Loss)
$
6,183

 
 
 


Established Communities are consolidated communities in the markets where the Company has a significant presence (New England, New York/New Jersey, Mid-Atlantic, Pacific Northwest, and Northern and Southern California) 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 2019 operating results, Established Communities are consolidated communities that have Stabilized Operations as of January 1, 2018, 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. 


6




EBITDA, EBITDAre and Core EBITDAre are considered by management to be supplemental measures of our financial performance. EBITDA is defined by the Company as net income or loss attributable to the Company before interest income and expense, income taxes, depreciation and amortization. EBITDAre is calculated by the Company in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”), as EBITDA plus or minus losses and gains on the disposition of depreciated property, plus impairment write-downs of depreciated property, with adjustments to reflect the Company's share of EBITDAre of unconsolidated entities. Core EBITDAre is the Company’s EBITDAre as adjusted for non-core items outlined in the table below. By further adjusting for items that are not considered part of the Company’s core business operations, Core EBITDAre can help one compare the core operating and financial performance of the Company between periods.  A reconciliation of EBITDA, EBITDAre and Core EBITDAre to net income is as follows (dollars in thousands):
TABLE 4
 
 
Q1
 
 
2019
Net income
 
$
170,418

Interest expense, net, inclusive of loss on extinguishment of debt, net
 
48,172

Income tax expense
 
12

Depreciation expense
 
162,057

EBITDA
 
$
380,659

 
 
 

Gain on sale of communities
 
(14,835
)
Joint venture EBITDAre adjustments (1)
 
6,839

EBITDAre
 
$
372,663

 
 
 
Gain on other real estate transactions
 
(267
)
Business interruption insurance proceeds
 
(172
)
Severance related costs
 
19

Development pursuit write-offs and expensed transaction costs, net
 
277

Residential for-sale condo activity
 
473

Legal settlements
 
(1,016
)
Core EBITDAre
 
$
371,977

 
 
 
(1) Includes joint venture interest, taxes, depreciation, gain on dispositions of depreciated real estate and impairment losses, if applicable, included in net income.
 
 
 
 


FFO and Core FFO are considered by management to be supplemental measures of our operating and financial performance. FFO is calculated by the Company in accordance with the definition adopted by NAREIT. FFO is calculated by the Company as Net income or loss attributable to common stockholders computed in accordance with GAAP, adjusted for gains or losses on sales of previously depreciated operating communities, cumulative effect of a change in accounting principle, impairment write-downs of depreciable real estate assets, write-downs of investments in affiliates which are driven by a decrease in the value of depreciable real estate assets held by the affiliate and depreciation of real estate assets, including adjustments for unconsolidated partnerships and joint ventures. By excluding gains or losses related to dispositions of previously depreciated operating communities and excluding real estate depreciation (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO can help one compare the operating and financial performance of a company’s real estate between periods or as compared to different companies. Core FFO is the Company's FFO as adjusted for non-core items outlined in the table below. By further adjusting for items that are not considered part of our core business operations, Core FFO can help one compare the core operating and financial performance of the Company between periods. A reconciliation of Net income attributable to common stockholders to FFO and to Core FFO is as follows (dollars in thousands):

7




TABLE 5
 
 
Q1
 
Q1
 
 
2019
 
2018
Net income attributable to common stockholders
 
$
170,366

 
$
141,643

Depreciation - real estate assets, including joint venture adjustments
 
164,746

 
158,483

Distributions to noncontrolling interests
 
11

 
11

Gain on sale of previously depreciated real estate
 
(14,835
)
 

FFO attributable to common stockholders
 
320,288

 
300,137

 
 
 
 
 
Adjusting items:
 
 
 
 
Joint venture promote (1)
 

 
(925
)
Casualty gain, net on real estate
 

 
(58
)
Business interruption insurance proceeds
 
(172
)
 

Lost NOI from casualty losses covered by business interruption insurance (2)
 

 
898

Loss on extinguishment of consolidated debt
 
280

 
397

Advocacy contributions
 

 
303

Severance related costs
 
19

 
370

Development pursuit write-offs and expensed transaction costs, net
 
277

 
327

Residential for-sale condo activity
 
473

 

(Gain) loss on other real estate transactions
 
(267
)
 
47

Legal settlements
 
(1,016
)
 
300

Income taxes
 
(6
)
 

Core FFO attributable to common stockholders
 
$
319,876

 
$
301,796

 
 
 
 
 
Average shares outstanding - diluted
 
138,832,201

 
138,153,170

 
 
 
 
 
Earnings per share - diluted
 
$
1.23

 
$
1.03

FFO per common share - diluted
 
$
2.31

 
$
2.17

Core FFO per common share - diluted
 
$
2.30

 
$
2.18

 
 
 
 
 
(1) Represents the Company's promoted interest in AvalonBay Value Added Fund II, L.P.
(2) Amount for 2018 is for the Maplewood casualty loss, which occurred in Q1 2017, and for which the Company recognized $3,495 in business interruption insurance proceeds in Q3 2017.
 
 


Initial Year Market Cap Rate is defined by the Company as Projected NOI of a single community for the first 12 months of operations (assuming no repositioning), less estimates for non-routine allowance of approximately $300 - $500 per apartment home, divided by the gross sales price for the community.  Projected NOI, as referred to above, represents management’s estimate of projected rental revenue minus projected operating expenses before interest, income taxes (if any), depreciation and amortization. For this purpose, management’s projection of operating expenses for the community includes a management fee of 2.5% - 3.5%. The Initial Year Market Cap Rate, which may be determined in a different manner by others, is a measure frequently used in the real estate industry when determining the appropriate purchase price for a property or estimating the value for a property.  Buyers may assign different Initial Year Market Cap Rates to different communities when determining the appropriate value because they (i) may project different rates of change in operating expenses and capital expenditure estimates and (ii) may project different rates of change in future rental revenue due to different estimates for changes in rent and occupancy levels.  The weighted average Initial Year Market Cap Rate is weighted based on the gross sales price of each community.

Interest Coverage is calculated by the Company as Core EBITDAre, divided by the sum of interest expense, net, and preferred dividends, if applicable. Interest Coverage is presented by the Company because it provides rating agencies and investors an additional means of comparing our ability to service debt obligations to that of other companies. A calculation of Interest Coverage for the three months ended March 31, 2019 is as follows (dollars in thousands):


8




TABLE 6
 
 

Core EBITDAre
$
371,977

 
 
Interest expense, net
$
47,892

 
 
Interest Coverage
7.8 times

 
 
 

Market Rents as reported by the Company are based on the current market rates set by the Company based on its experience in renting apartments and publicly available market data. Trends in market rents for a region as reported by others could vary. Market Rents for a period are based on the average Market Rents during that period and do not reflect any impact for cash concessions.

Net Debt-to-Core EBITDAre is calculated by the Company as total debt (secured and unsecured notes and the Company's variable rate unsecured credit facility) that is consolidated for financial reporting purposes, less consolidated cash and cash in escrow, divided by annualized first quarter 2019 Core EBITDAre, as adjusted. A calculation of Net Debt-to-Core EBITDAre is as follows (dollars in thousands):

TABLE 7
 
 
Total debt principal (1)
$
7,100,685

Cash and cash in escrow
(195,207
)
Net debt
$
6,905,478

 
 
Core EBITDAre
$
371,977

 
 
Core EBITDAre, annualized
$
1,487,908

 
 
Net Debt-to-Core EBITDAre
4.6 times

 
 
(1) Balance at March 31, 2019 excludes $9,515 of debt discount and $33,158 of deferred financing costs as reflected in unsecured notes, net, and $14,559 of debt discount and $3,386 of deferred financing costs as reflected in notes payable on the Condensed Consolidated Balance Sheets.
 
 
 


NOI is defined by the Company as total property revenue less direct property operating expenses (including property taxes), and excluding corporate-level income (including management, development and other fees), corporate-level property management and other indirect operating expenses, investments and investment management expenses, expensed transaction, development and other pursuit costs, net of recoveries, interest expense, net, loss (gain) on extinguishment of debt, net, general and administrative expense, joint venture income, depreciation expense, corporate income tax expense, casualty and impairment loss (gain), net, gain on sale of communities, loss (gain) on other real estate transactions and net operating income from real estate assets sold or held for sale. The Company considers NOI to be an important and appropriate supplemental performance measure to Net Income of operating performance of a community or communities because it helps both investors and management to understand the core operations of a community or communities prior to the allocation of any corporate-level property management overhead or financing-related costs. NOI reflects the operating performance of a community, and allows for an easier comparison of the operating performance of individual assets or groups of assets. In addition, because prospective buyers of real estate have different financing and overhead structures, with varying marginal impact to overhead as a result of acquiring real estate, NOI is considered by many in the real estate industry to be a useful measure for determining the value of a real estate asset or groups of assets.

A reconciliation of NOI to Net Income, as well as a breakdown of NOI by operating segment, is as follows (dollars in thousands):


9




TABLE 8
 
 
Q1
 
Q1
 
Q4
 
 
2019
 
2018
 
2018
Net income
 
$
170,418

 
$
141,590

 
$
385,636

Indirect operating expenses, net of corporate income
 
19,722

 
18,958

 
21,849

Expensed transaction, development and other pursuit costs, net of recoveries
 
1,095

 
800

 
1,599

Interest expense, net
 
47,892

 
55,113

 
55,180

Loss on extinguishment of debt, net
 
280

 
397

 
14,775

General and administrative expense
 
13,700

 
14,431

 
15,738

Joint venture loss (income)
 
1,060

 
(1,740
)
 
(2,710
)
Depreciation expense
 
162,057

 
159,059

 
158,914

Casualty and impairment (gain) loss, net
 

 
(58
)
 
826

Gain on sale of communities
 
(14,835
)
 

 
(242,532
)
(Gain) loss on other real estate transactions
 
(267
)
 
47

 
(9
)
NOI from real estate assets sold or held for sale
 
(1,238
)
 
(19,311
)
 
(11,148
)
NOI
 
$
399,884

 
$
369,286

 
$
398,118

 
 
 
 
 
 
 
Established:
 
 

 
 

 
 

    New England
 
$
43,152

 
$
41,077

 
$
43,592

    Metro NY/NJ
 
71,843

 
69,017

 
72,783

    Mid-Atlantic
 
51,052

 
48,855

 
51,543

    Pacific NW
 
20,210

 
18,623

 
20,868

    No. California
 
72,501

 
68,916

 
71,100

    So. California
 
72,695

 
69,600

 
72,320

        Total Established
 
331,453

 
316,088

 
332,206

Other Stabilized
 
44,948

 
32,121

 
42,597

Redevelopment
 
22,040

 
21,266

 
22,202

Development
 
1,443

 
(189
)
 
1,113

NOI
 
$
399,884

 
$
369,286

 
$
398,118

 
 
 
 
 
 
 
 

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 9
 
 
Q1
 
Q1
 
 
2019
 
2018
 
 
 
 
 
Revenue from real estate assets sold or held for sale
 
$
2,394

 
$
29,647

Operating expenses from real estate assets sold or held for sale
 
(1,156
)
 
(10,336
)
NOI from real estate assets sold or held for sale
 
$
1,238

 
$
19,311

 
 
 
 
 
 
 

Other Stabilized Communities are completed consolidated communities that the Company owns, which have Stabilized Operations as of January 1, 2019, or which we acquired during the year ended March 31, 2019. Other Stabilized Communities includes stabilized operating communities in the Company's expansion markets of Denver, Colorado, and Southeast Florida, but excludes communities that are conducting or are probable to conduct substantial redevelopment activities.

Projected NOI, as used within this release for certain Development Communities and in calculating the Initial Year Market Cap Rate for dispositions, represents management’s estimate, as of the date of this release (or as of the date of the buyer’s valuation in the case of dispositions), of projected stabilized rental revenue minus projected stabilized operating expenses. For Development Communities, Projected NOI is calculated based on the first twelve months of Stabilized Operations following the completion of construction. In calculating the Initial Year Market Cap Rate, Projected NOI for dispositions is calculated for the first twelve months following the date of the buyer’s valuation. Projected stabilized rental revenue represents management’s estimate of projected gross potential minus projected stabilized economic vacancy and adjusted for projected stabilized concessions plus projected stabilized other rental revenue. Projected stabilized operating expenses do not include interest, income taxes (if any), depreciation or amortization, or any allocation of corporate-level property management overhead or general and administrative costs. In addition,

10




projected stabilized operating expenses for Development Communities do not include property management fee expense. Projected gross potential for Development Communities and dispositions is generally based on leased rents for occupied homes and management’s best estimate of rental levels for homes which are currently unleased, as well as those homes which will become available for lease during the twelve month forward period used to develop Projected NOI. The weighted average Projected NOI as a percentage of Total Capital Cost ("Weighted Average Initial Projected Stabilized Yield") is weighted based on the Company’s share of the Total Capital Cost of each community, based on its percentage ownership.

Management believes that Projected NOI of the Development Communities, on an aggregated weighted average basis, assists investors in understanding management's estimate of the likely impact on operations of the Development Communities when the assets are complete and achieve stabilized occupancy (before allocation of any corporate-level property management overhead, general and administrative costs or interest expense). However, in this release the Company has not given a projection of NOI on a company-wide basis. Given the different dates and fiscal years for which NOI is projected for these communities, the projected allocation of corporate-level property management overhead, general and administrative costs and interest expense to communities under development is complex, impractical to develop, and may not be meaningful. Projected NOI of these communities is not a projection of the Company's overall financial performance or cash flow. There can be no assurance that the communities under development will achieve the Projected NOI as described in this release.

Redevelopment Communities are consolidated communities where substantial redevelopment is in progress or is probable to begin during the current year. Redevelopment is considered substantial when 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 is expected to have a material impact on the operations of the community, including occupancy levels and future rental rates.

Redevelopment Communities include nine communities containing 3,396 apartment homes that are currently under active redevelopment as of March 31, 2019, with an expected Total Capital Cost of $159,000,000, of which $73,000,000 is remaining to invest.

Rental Revenue with Concessions on a Cash Basis is considered by the Company to be a supplemental measure to rental revenue in conformity with GAAP to help investors evaluate the impact of both current and historical concessions on GAAP-based rental revenue and to more readily enable comparisons to revenue as reported by other companies. In addition, Rental Revenue with Concessions on a Cash Basis allows an investor to understand the historical trend in cash concessions.

A reconciliation of rental revenue from Established Communities in conformity with GAAP to Rental Revenue with Concessions on a Cash Basis is as follows (dollars in thousands):

TABLE 10
 
 
Q1
 
Q1
 
 
2019
 
2018
Rental revenue (GAAP basis)
 
$
459,806

 
$
444,495

Concessions amortized
 
217

 
1,602

Concessions granted
 
(283
)
 
(675
)
 
 
 
 
 
Rental Revenue with Concessions
 
 

 
 

   on a Cash Basis
 
$
459,740

 
$
445,422

 
 
 
 
 
% change -- GAAP revenue
 
 

 
3.4
%
 
 
 
 
 
% change -- cash revenue
 
 

 
3.2
%
 
 
 
 
 
 


Stabilized Operations/Restabilized Operations is defined as the earlier of (i) attainment of 95% physical occupancy or (ii) the one-year anniversary of completion of development or redevelopment.
 
Total Capital Cost includes all capitalized costs projected to be or actually incurred to develop the respective Development or Redevelopment Community, or Development Right, including land acquisition costs, construction costs, real estate taxes, capitalized interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees, offset by proceeds from the sale of any associated land or improvements, all as determined in accordance with GAAP. Total Capital Cost also includes costs incurred related to first generation retail tenants, such as tenant improvements and leasing commissions. For Redevelopment Communities, Total Capital Cost excludes costs incurred prior to the start of redevelopment when indicated. With respect to communities where development or redevelopment was completed in a prior or the current period, Total Capital Cost reflects the actual cost incurred, plus any contingency estimate made by management. Total Capital Cost for communities identified as having

11




joint venture ownership, either during construction or upon construction completion, represents the total projected joint venture contribution amount. For joint ventures not in construction, Total Capital Cost is equal to gross real estate cost.

Unencumbered NOI as calculated by the Company represents NOI generated by real estate assets unencumbered by outstanding secured notes payable as of March 31, 2019 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, 2019 is as follows (dollars in thousands):


 
TABLE 11
 
 
Q1 2019
 
 
NOI
NOI for Established Communities
 
$
331,453

NOI for Other Stabilized Communities
 
44,948

NOI for Redevelopment Communities
 
22,040

NOI for Development Communities
 
1,443

NOI from real estate assets sold or held for sale
 
1,238

Total NOI generated by real estate assets
 
401,122

NOI on encumbered assets
 
36,157

NOI on unencumbered assets
 
$
364,965

 
 
 
Unencumbered NOI
 
91
%
 
 
 
 



12

(Back To Top)

Section 3: EX-99.2 (EXHIBIT 99.2)

Exhibit

Exhibit 99.2
397649299_avbpressreleaseheader1a13.jpg
For Immediate News Release
April 24, 2019

AVALONBAY COMMUNITIES, INC. ANNOUNCES
FIRST QUARTER 2019 OPERATING RESULTS









(Arlington, VA) AvalonBay Communities, Inc. (NYSE: AVB) (the “Company”) reported today that Net Income Attributable to Common Stockholders for the three months ended March 31, 2019 was $170,366,000. This resulted in an increase in Earnings per Share – diluted (“EPS”) for the three months ended March 31, 2019 of 19.4% to $1.23 from $1.03 for the prior year period.

Funds from Operations attributable to common stockholders - diluted (“FFO”) per share for the three months ended March 31, 2019 increased 6.5% to $2.31 from $2.17 for the prior year period. Core FFO per share (as defined in this release) for the three months ended March 31, 2019 increased 5.5% to $2.30 from $2.18 for the prior year period.

The following table compares the Company’s actual results for EPS, FFO per share and Core FFO per share for the three months ended March 31, 2019 to its results for the prior year period:
 
 
Q1 2019 Results Compared to Q1 2018
 
Per Share (1)
 
EPS
FFO
Core FFO
Q1 2018 per share reported results
$
1.03

$
2.17

$
2.18

Established and Redevelopment Community NOI
0.12

0.12

0.12

Development and Other Stabilized Community NOI
0.08

0.08

0.07

Capital markets activity
(0.06
)
(0.06
)
(0.06
)
Overhead expense and other


(0.02
)
Joint venture income


0.01

Gain on sale of real estate and depreciation expense
0.06



Q1 2019 per share reported results
$
1.23

$
2.31

$
2.30

 
 
 
 
(1) For additional detail on reconciling items between EPS, FFO and Core FFO, see Attachment 12, table 5.
 
 
Established Communities Operating Results for the Three Months Ended March 31, 2019 Compared to the Prior Year Period (a) 

For Established Communities, total revenue increased $15,593,000, or 3.5%, to $460,273,000. Operating expenses for Established Communities increased $228,000, or 0.2%, to $128,820,000. NOI for Established Communities increased $15,365,000, or 4.9%, to $331,453,000. Rental revenue for Established Communities increased 3.4% as a result of an increase in Average Rental Rates of 3.5%, partially offset by a decrease in Economic Occupancy of 0.1%.

The following table reflects the percentage changes in rental revenue, operating expenses and NOI for Established Communities for the three months ended March 31, 2019 compared to the three months ended March 31, 2018:
 
Q1 2019 Compared to Q1 2018
 
 
Rental
Revenue (1)(2)
 
Opex
(2)(3)
 
NOI
 
% of
NOI (4)
New England
 
3.2
%
 
 %
 
5.1
%
 
14.2
%
Metro NY/NJ
 
3.2
%
 
1.2
 %
 
4.1
%
 
22.2
%
Mid-Atlantic
 
3.2
%
 
0.2
 %
 
4.5
%
 
16.0
%
Pacific NW
 
4.8
%
 
(3.5
)%
 
8.5
%
 
5.6
%
No. California
 
3.5
%
 
(2.0
)%
 
5.2
%
 
21.1
%
So. California
 
3.7
%
 
1.9
 %
 
4.4
%
 
20.9
%
   Total
 
3.4
%
 
0.2
 %
 
4.9
%
 
100.0
%
 
 
 
 
 
 
 
 
 
(1) See Attachment 4, Quarterly Rental Revenue and Occupancy Changes, for additional detail.
(2) 2018 results have been adjusted to reflect uncollectible lease revenue as an adjustment to revenue. See Attachment 12, table 1.
(3) See Attachment 6, Operating Expenses ("Opex"), for discussion of variances.
(4) Represents % of total NOI for Q1 2019 in the presented regions, including amounts related to communities that have been sold or that are classified as held for sale.
 

(a) Historically, the Company presented charges related to uncollectible lease revenue in operating expenses. With the Company’s adoption of ASU 2016-02, Leases, the Company is presenting such charges as an adjustment to revenue in its consolidated GAAP financial statements on a prospective basis, beginning with the three months ended March 31, 2019. However, for reported segment financial information, including for Established Communities, the Company has also included such charges as an adjustment to revenue for all prior year periods presented in order to provide comparability. Refer to Attachment 12, table 1, for additional detail and a reconciliation. 
Copyright © 2019 AvalonBay Communities, Inc. All Rights Reserved
1


Development Activity

During the three months ended March 31, 2019, the Company completed the development of two communities:

Avalon at the Hingham Shipyard II, located in Hingham, MA; and
Avalon Sudbury, located in Sudbury, MA.

These communities contain an aggregate of 440 apartment homes and were constructed for an aggregate Total Capital Cost of $152,000,000.

At March 31, 2019 (excluding 15 West 61st Street, which is expected to be developed for a Total Capital Cost of $620,000,000), the Company had 19 Development Communities under construction that in the aggregate are expected to contain 6,170 apartment homes and 87,000 square feet of retail space. Estimated Total Capital Cost at completion for these Development Communities is $2,233,000,000.

The projected Total Capital Cost of Development Rights at March 31, 2019 increased to $4.2 billion from $4.1 billion at December 31, 2018.

Acquisition Activity

During the three months ended March 31, 2019, the Company acquired the Ridge at Wheatlands, located in Aurora, CO, containing 338 apartment homes for a purchase price of $91,250,000.

Disposition Activity

During the three months ended March 31, 2019, the Company sold Oakwood Arlington, a wholly-owned operating community, located in Arlington, VA. Oakwood Arlington contains 184 apartment homes and was sold for $70,000,000, resulting in a gain in accordance with GAAP of $16,382,000 and an Economic Gain of $6,183,000.

In April 2019, the Company sold Archstone Toscano, located in Houston, TX. Archstone Toscano contains 474 apartment homes and was sold for $98,000,000.

 
Liquidity and Capital Markets

In February 2019, the Company amended and restated its unsecured revolving credit facility to increase its borrowing capacity from $1,500,000,000 to $1,750,000,000. In addition, the term of the credit facility was extended from April 2020 to February 2024. As part of the amendment and restatement, the Company decreased its current borrowing spread over LIBOR to 0.775% from 0.825%, and maintained its annual facility fee at 0.125%.

At March 31, 2019, the Company did not have any borrowings outstanding under its $1,750,000,000 unsecured credit facility, and had $195,207,000 in unrestricted cash and cash in escrow.

During the three months ended March 31, 2019, the Company amended and restated its $250,000,000 variable rate unsecured term loan that it originally entered into in February 2017, which consists of two tranches. The first tranche of $100,000,000 matures in February 2022, with stated pricing of LIBOR plus 0.90%, which did not change. The second tranche of $150,000,000 matures in February 2024, with stated pricing of LIBOR plus 0.85%, which decreased from LIBOR plus 1.50%.

In addition, during the three months ended March 31, 2019, the Company sold 755,054 shares of common stock at an average sales price of $198.26 per share, for net proceeds of $147,450,000 under the current continuous equity program established in December 2015.

The Company’s annualized Net Debt-to-Core EBITDAre (as defined in this release) for the first quarter of 2019 was 4.6 times.

Second Quarter Conference Schedule

The Company is scheduled to participate in NAREIT's REITWeek Conference in New York, NY, from June 4 - 6, 2019. During this conference, management may discuss the Company's current operating environment; operating trends; development, redevelopment, disposition and acquisition activity; portfolio strategy and other business and financial matters affecting the Company. Details on how to access related materials will be available beginning June 3, 2019 on the Company's website at http:// www.avalonbay.com/events.


Copyright © 2019 AvalonBay Communities, Inc. All Rights Reserved
2





Other Matters

The Company will hold a conference call on April 25, 2019 at 1:00 PM ET to review and answer questions about this release, its first quarter 2019 results, the Attachments (described below) and related matters. To participate on the call, dial 888-256-1007 and use conference id: 7961532.

To hear a replay of the call, which will be available from April 25, 2019 at 6:00 PM ET to May 2, 2019 at 6:00 PM ET, dial 888-203-1112 and use conference id: 7961532. A webcast of the conference call will also be available at http://www.avalonbay.com/earnings, and an on-line playback of the webcast will be available for at least seven days following the call.
 
The Company produces Earnings Release Attachments (the "Attachments") that provide detailed information regarding operating, development, redevelopment, disposition and acquisition activity. These Attachments are considered a part of this earnings release and are available in full with this earnings release via the Company's website at http://www.avalonbay.com/earnings. To receive future press releases via e-mail, please submit a request through http://www.avalonbay.com/email.

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 April 25, 2019. These supplemental materials will be available on the Company's website for 30 days following the earnings call.

About AvalonBay Communities, Inc.

As of March 31, 2019, the Company owned or held a direct or indirect ownership interest in 291 apartment communities containing 85,313 apartment homes in 12 states and the District of Columbia, of which 19 communities were under development and nine 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 primarily in New England, the New York/New Jersey Metro area, the Mid-Atlantic, the Pacific Northwest, and the Northern and Southern California regions of the United States. More information may be found on the Company’s website at http://www.avalonbay.com. For additional information, please contact Jason Reilley, Vice President of Investor Relations, at 703-317-4681.

 
Forward-Looking Statements

This release, including its Attachments, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements, which you can identify by the Company’s use of words such as “expects,” “plans,” “estimates,” “anticipates,” “projects,” “intends,” “believes,” “outlook” and similar expressions that do not relate to historical matters, are based on the Company’s expectations, forecasts and assumptions at the time of this release, which may not be realized and involve risks and uncertainties that cannot be predicted accurately or that might not be anticipated. These could cause actual results to differ materially from those expressed or implied by the forward-looking statements. Risks and uncertainties that might cause such differences include the following, among others: we may abandon development or redevelopment opportunities for which we have already incurred costs; adverse capital and credit market conditions may affect our access to various sources of capital and/or cost of capital, which may affect our business activities, earnings and common stock price, among other things; changes in local employment conditions, demand for apartment homes, supply of competitive housing products, and other economic conditions may result in lower than expected occupancy and/or rental rates and adversely affect the profitability of our communities; delays in completing development, redevelopment and/or lease-up may result in increased financing and construction costs and may delay and/or reduce the profitability of a community; debt and/or equity financing for development, redevelopment or acquisitions of communities may not be available or may not be available on favorable terms; we may be unable to obtain, or experience delays in obtaining, necessary governmental permits and authorizations; expenses may result in communities that we develop or redevelop failing to achieve expected profitability; our assumptions concerning risks relating to our lack of control of joint ventures and our abilities to successfully dispose of certain assets may not be realized; and our assumptions and expectations in our financial outlook may prove to be too optimistic. 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, 2018 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.


Copyright © 2019 AvalonBay Communities, Inc. All Rights Reserved
3





The Company does not undertake a duty to update forward-looking statements, including its expected 2019 operating results and other financial data forecasts contained in this release. The Company may, in its discretion, provide information in future public announcements regarding its outlook that may be of interest to the investment community. The format and extent of future outlooks may be different from the format and extent of the information contained in this release.
 
Definitions and Reconciliations

Non-GAAP financial measures and other capitalized terms, as used in this earnings release, are defined, reconciled and further explained on Attachment 12, Definitions and Reconciliations of Non-GAAP Financial Measures and Other Terms. Attachment 12 is included in the full earnings release available at the Company’s website at http://www.avalonbay.com/earnings.

Copyright © 2019 AvalonBay Communities, Inc. All Rights Reserved
4





397649299_erq12019.jpg

5



 

 FIRST QUARTER 2019
 
Supplemental Operating and Financial Data
 
Table of Contents
 
Company Profile
 
 
Condensed Consolidated Operating Information...........................................................................................................
 
Attachment 1
Condensed Consolidated Balance Sheets....................................................................................................................
 
Attachment 2
Sequential Operating Information by Business Segment..............................................................................................
 
Attachment 3
 
 
 
Market Profile - Established Communities
 
 
Quarterly Rental Revenue and Occupancy Changes....................................................................................................
 
Attachment 4
Sequential Quarterly Rental Revenue and Occupancy Changes..................................................................................
 
Attachment 5
Operating Expenses ("Opex")........................................................................................................................................
 
Attachment 6
 
 
 
Development, Joint Venture and Debt Profile
 
 
Expensed Community Maintenance Costs and Capitalized Community Expenditures.................................................
 
Attachment 7
Development Communities............................................................................................................................................
 
Attachment 8
Future Development......................................................................................................................................................
 
Attachment 9
Unconsolidated Real Estate Investments......................................................................................................................
 
Attachment 10
Debt Structure and Select Debt Metrics.........................................................................................................................
 
Attachment 11
 
 
 
Definitions and Reconciliations
 
 
Definitions and Reconciliations of Non-GAAP Financial Measures and Other Terms...................................................
 
Attachment 12

 
The following is a "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The projections and estimates contained in the following attachments, including but not limited to Attachments 8 and 9, are forward-looking statements that involve risks and uncertainties, and actual results may differ materially from those projected in such statements. Risks associated with the Company's development, redevelopment, construction, and lease-up activities which could impact the forward-looking statements are discussed in the paragraph titled "Forward-Looking Statements" in the release that accompanies these attachments. Among other risks, development opportunities may be abandoned; Total Capital Cost of a community may exceed original estimates, possibly making the community uneconomical and/or affecting projected returns; construction and lease-up may not be completed on schedule, resulting in increased debt service and construction costs; and other risks described 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, 2018 and the Company's Quarterly Reports on Form 10-Q for subsequent quarters, could cause actual results to differ materially from such projections and estimates.
 

6



 
Attachment 1
AvalonBay Communities, Inc.
Condensed Consolidated Operating Information
March 31, 2019
(Dollars in thousands except per share data)
(unaudited)
 
 
Q1
 
Q1
 
 
 
 
2019
 
2018
 
% Change
Revenue:
 
 

 
 

 
 

Rental and other income (1)
 
$
565,045

 
$
559,906

 
0.9
 %
Management, development and other fees
 
1,139

 
886

 
28.6
 %
Total
 
566,184

 
560,792

 
1.0
 %
Operating expenses:
 


 
 
 
 
Direct property operating expenses, excluding property taxes (1)
 
102,586

 
111,405

 
(7.9
)%
Property taxes
 
61,329

 
59,896

 
2.4
 %
Property management and other indirect operating expenses
 
20,869

 
19,852

 
5.1
 %
Total operating expenses
 
184,784

 
191,153

 
(3.3
)%
 
 
 
 
 
 
 
Interest expense, net
 
(47,892
)
 
(55,113
)
 
(13.1
)%
Loss on extinguishment of debt, net
 
(280
)
 
(397
)
 
(29.5
)%
General and administrative expense
 
(13,700
)
 
(14,431
)
 
(5.1
)%
Joint venture (loss) income (2)
 
(1,060
)
 
1,740

 
N/A

Expensed transaction, development and other pursuit costs, net of recoveries
 
(1,095
)
 
(800
)
 
36.9
 %
Depreciation expense
 
(162,057
)
 
(159,059
)
 
1.9
 %
Casualty and impairment gain, net
 

 
58

 
(100.0
)%
Gain on sale of communities
 
14,835

 

 
100.0
 %
Gain (loss) on other real estate transactions
 
267

 
(47
)
 
N/A

Net income
 
170,418

 
141,590

 
20.4
 %
 
 
 
 
 
 
 
Net (income) loss attributable to noncontrolling interests
 
(52
)
 
53

 
N/A

Net income attributable to common stockholders
 
$
170,366

 
$
141,643

 
20.3
 %
 
 
 
 
 
 
 
Net income attributable to common stockholders per common share - basic
 
$
1.23

 
$
1.03

 
19.4
 %
Net income attributable to common stockholders per common share - diluted
 
$
1.23

 
$
1.03

 
19.4
 %
 
 
 
 
 
 
 
FFO (3)
 
$
320,288

 
$
300,137

 
6.7
 %
Per common share - diluted
 
$
2.31

 
$
2.17

 
6.5
 %
 
 
 
 
 
 
 
Core FFO (3)
 
$
319,876

 
$
301,796

 
6.0
 %
Per common share - diluted
 
$
2.30

 
$
2.18

 
5.5
 %
 
 
 
 
 
 
 
Dividends declared - common
 
$
212,166

 
$
203,166

 
4.4
 %
Per common share
 
$
1.52

 
$
1.47

 
3.4
 %
 
 
 
 
 
 
 
Average shares and participating securities outstanding - basic
 
138,738,917

 
138,183,976

 
0.4
 %
Average shares outstanding - diluted
 
138,832,201

 
138,153,170

 
0.5
 %
Total outstanding common shares and operating partnership units
 
139,410,722

 
138,215,780

 
0.9
 %

(1)
Historically, the Company presented charges related to uncollectible lease revenue in operating expenses. With the Company’s adoption of ASU 2016-02, Leases, the Company is presenting such charges as an adjustment to revenue in its consolidated GAAP financial statements on a prospective basis, beginning with the three months ended March 31, 2019.
(2)
Joint venture (loss) income includes amounts related to disposition activity as well as amounts earned for the Company's promoted interest.
(3)
See Attachment 12 - Definitions and Reconciliations of Non-GAAP Financial Measures and Other Terms.

 

7






 
Attachment 2
 
AvalonBay Communities, Inc.
Condensed Consolidated Balance Sheets
March 31, 2019
(Dollars in thousands)
(unaudited)
 
 
 
 
 
 
 
 
March 31,
 
December 31,
 
 
2019
 
2018
 
 
 
 
 
Real estate
 
$
20,587,049

 
$
20,424,325

Less accumulated depreciation
 
(4,748,578
)
 
(4,601,447
)
 
 
 
 
 
Net operating real estate
 
15,838,471

 
15,822,878

Construction in progress, including land
 
1,856,294

 
1,768,132

Land held for development
 
104,963

 
84,712

Real estate assets held for sale, net
 
76,362

 
55,208

 
 
 
 
 
Total real estate, net
 
17,876,090

 
17,730,930

 
 
 
 
 
Cash and cash equivalents
 
62,999

 
91,659

Cash in escrow
 
132,208

 
126,205

Resident security deposits
 
32,747

 
31,816

Investments in unconsolidated real estate entities
 
212,639

 
217,432

Other assets
 
323,300

 
182,158

 
 
 
 
 
Total assets
 
$
18,639,983

 
$
18,380,200

 
 
 
 
 
Unsecured notes, net
 
$
5,907,327

 
$
5,905,993

Unsecured credit facility
 

 

Notes payable, net
 
1,132,740

 
1,134,270

Resident security deposits
 
60,461

 
58,415

Other liabilities
 
802,060

 
645,672

Total liabilities
 
7,902,588

 
7,744,350

 
 
 
 
 
Redeemable noncontrolling interests
 
3,396

 
3,244

Equity
 
10,733,999

 
10,632,606

 
 
 
 
 
Total liabilities and equity
 
$
18,639,983

 
$
18,380,200


 


8



 
Attachment 3
AvalonBay Communities, Inc.
Sequential Operating Information by Business Segment (1)
March 31, 2019
(Dollars in thousands, except per home data)
(unaudited)
 
 
Total
 
Quarter Ended
 
Quarter Ended
 
 
Apartment
 
March
 
December
 
 
Homes
 
31, 2019
 
31, 2018
RENTAL REVENUE (2)(3)
 
 

 
 
 
 

Established
 
61,079

 
$
459,806

 
$
459,215

Other Stabilized (4)
 
9,242

 
66,385

 
63,727

Redevelopment
 
4,249

 
31,808

 
31,939

Development
 
6,610

 
3,767

 
2,277

     Total Consolidated Communities
 
81,180

 
$
561,766

 
$
557,158

 
 
 
 
 
 
 
OPERATING EXPENSE (3)
 
 
 
 
 
 
Established
 
 
 
$
128,820

 
$
127,342

Other Stabilized (4)
 
 
 
21,842

 
21,213

Redevelopment
 
 
 
9,770

 
9,738

Development
 
 
 
2,327

 
1,165

     Total Consolidated Communities
 
 
 
$
162,759

 
$
159,458

 
 
 
 
 
 
 
NOI (5)
 
 
 
 
 
 
Established
 
 
 
$
331,453

 
$
332,206

Other Stabilized (4)
 
 
 
44,948

 
42,597

Redevelopment
 
 
 
22,040

 
22,202

Development
 
 
 
1,443

 
1,113

     Total Consolidated Communities
 
 
 
$
399,884

 
$
398,118

 
 
 
 
 
 
 
AVERAGE REVENUE PER OCCUPIED HOME (6)
 
 
 
 
Established
 
 
 
$
2,614

 
$
2,609

Other Stabilized (4)
 
 
 
$
2,580

 
$
2,529

Redevelopment
 
 
 
$
2,661

 
$
2,655

 
 
 
 
 
 
 
ECONOMIC OCCUPANCY (6)
 
 
 
 
 
 
Established
 
 
 
96.0
%
 
96.1
%
Other Stabilized (4)
 
 
 
94.2
%
 
94.4
%
Redevelopment
 
 
 
93.8
%
 
94.4
%
 
 
 
 
 
 
 
ESTABLISHED COMMUNITIES TURNOVER (7)
 
 
 
 
 
 
Current year period / Prior year period
 
41.5% / 43.9%

 
42.3% / 45.2%


(1)
Includes consolidated communities and excludes amounts related to communities that have been sold or that are classified as held for sale.
(2)
Rental revenue excludes non-qualified REIT income and business interruption insurance proceeds.
(3)
Q4 2018 results have been adjusted to reflect uncollectible lease revenue as a reduction of revenue for comparable presentation to the Q1 2019 results. See Attachment 12, tables 1 and 2, for additional detail and reconciliations.
(4)
Results for these communities for quarters prior to January 1, 2019 may reflect community operations prior to stabilization, including periods of lease-up, such that occupancy levels are below what would be considered stabilized.
(5)
See Attachment 12 - Definitions and Reconciliations of Non-GAAP Financial Measures and Other Terms.
(6)
For per home rent projections and Economic Occupancy for Development Communities currently under construction and/or completed in Q1 2019, see Attachment 8 - Development Communities.
(7)
Turnover represents the annualized number of units turned over during the period, divided by the total number of apartment homes for Established Communities for the respective reporting period.
 
 
 
 
 
ESTABLISHED COMMUNITIES LIKE-TERM EFFECTIVE RENT CHANGE (5)
 
 
 
 
 
 
 
Q1 2019
 
Q1 2018
  New England
 
2.6%
 
1.6%
  Metro NY/NJ
 
2.0%
 
0.2%
  Mid-Atlantic
 
1.9%
 
0.4%
  Pacific NW
 
2.5%
 
0.4%
  No. California
 
3.2%
 
2.5%
  So. California
 
2.3%
 
3.2%
     Total
 
2.4%
 
1.6%
 
 
 
 
 

 

9



 
Attachment 4
AvalonBay Communities, Inc.
Quarterly Rental Revenue and Occupancy Changes - Established Communities (1)
March 31, 2019
(unaudited)
 
 
Apartment Homes
 
Average Rental Rates (2)
 
Economic Occupancy
 
Rental Revenue ($000s)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
% Change
 
 
 

 
Q1 19
 
Q1 18
 
% Change
 
Q1 19
 
Q1 18
 
% Change
 
Q1 19
 
Q1 18
 
% Change
 
incl. Redev (3)
 
  New England
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
     Boston, MA
 
7,201

 
$
2,633

 
$
2,542

 
3.6
%
 
95.2
%
 
95.3
%
 
(0.1
)%
 
$
54,131

 
$
52,300

 
3.5
%
 
 
3.5
%
     Fairfield, CT
 
1,677

 
2,352

 
2,305

 
2.0
%
 
96.4
%
 
96.7
%
 
(0.3
)%
 
11,409

 
11,214

 
1.7
%
 
 
1.5
%
     New England
 
8,878

 
2,580

 
2,497

 
3.3
%
 
95.4
%
 
95.5
%
 
(0.1
)%
 
65,540

 
63,514

 
3.2
%
 
 
3.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Metro NY/NJ
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     New York City, NY
 
3,058

 
3,745

 
3,624

 
3.3
%
 
95.5
%
 
95.6
%
 
(0.1
)%
 
32,795

 
31,766

 
3.2
%
 
 
2.7
%
     New York - Suburban
 
3,533

 
3,205

 
3,069

 
4.4
%
 
95.3
%
 
96.0
%
 
(0.7
)%
 
32,368

 
31,207

 
3.7
%
 
 
4.0
%
     New Jersey
 
4,872

 
2,535

 
2,484

 
2.1
%
 
96.9
%
 
96.4
%
 
0.5
 %
 
35,900

 
35,001

 
2.6
%
 
 
2.7
%
     Metro NY/NJ
 
11,463

 
3,064

 
2,967

 
3.3
%
 
95.9
%
 
96.0
%
 
(0.1
)%
 
101,063

 
97,974

 
3.2
%
 
 
3.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Mid-Atlantic
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Washington Metro/Baltimore, MD
 
11,232

 
2,218

 
2,163

 
2.5
%
 
96.3
%
 
95.6
%
 
0.7
 %
 
71,950

 
69,710

 
3.2
%
 
 
3.0
%
     Mid-Atlantic
 
11,232

 
2,218

 
2,163

 
2.5
%
 
96.3
%
 
95.6
%
 
0.7
 %
 
71,950

 
69,710

 
3.2
%
 
 
3.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Pacific Northwest
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Seattle, WA
 
4,116

 
2,327

 
2,214

 
5.1
%
 
96.4
%
 
96.7
%
 
(0.3
)%
 
27,696

 
26,426

 
4.8
%
 
 
4.4
%
     Pacific Northwest
 
4,116

 
2,327

 
2,214

 
5.1
%
 
96.4
%
 
96.7
%
 
(0.3
)%
 
27,696

 
26,426

 
4.8
%
 
 
4.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Northern California
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     San Jose, CA
 
4,408

 
2,946

 
2,810

 
4.8
%
 
96.5
%
 
97.1
%
 
(0.6
)%
 
37,592

 
36,066

 
4.2
%
 
 
4.6
%
     Oakland-East Bay, CA
 
2,944

 
2,572

 
2,523

 
1.9
%
 
96.3
%
 
96.5
%
 
(0.2
)%
 
21,871

 
21,503

 
1.7
%
 
 
2.2
%
     San Francisco, CA
 
3,349

 
3,494

 
3,349

 
4.3
%
 
96.0
%
 
96.5
%
 
(0.5
)%
 
33,684

 
32,454

 
3.8
%
 
 
3.8
%
     Northern California
 
10,701

 
3,014

 
2,901

 
3.9
%
 
96.3
%
 
96.7
%
 
(0.4
)%
 
93,147

 
90,023

 
3.5
%
 
 
3.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Southern California
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Los Angeles, CA
 
9,802

 
2,472

 
2,367

 
4.4
%
 
95.8
%
 
96.1
%
 
(0.3
)%
 
69,641

 
66,878

 
4.1
%
 
 
4.2
%
     Orange County, CA
 
2,821

 
2,191

 
2,142

 
2.3
%
 
96.7
%
 
96.1
%
 
0.6
 %
 
17,927

 
17,427

 
2.9
%
 
 
1.4
%
     San Diego, CA
 
2,066

 
2,176

 
2,108

 
3.2
%
 
95.2
%
 
96.0
%
 
(0.8
)%
 
12,842

 
12,543

 
2.4
%
 
 
2.4
%
     Southern California
 
14,689

 
2,376

 
2,286

 
3.9
%
 
95.9
%
 
96.1
%
 
(0.2
)%
 
100,410

 
96,848

 
3.7
%
 
 
3.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        Total Established
 
61,079

 
$
2,614

 
$
2,525

 
3.5
%
 
96.0
%
 
96.1
%
 
(0.1
)%
 
$
459,806

 
$
444,495

 
3.4
%
(4)
 
3.4
%

(1)
Established Communities are communities with Stabilized Operations as of January 1, 2018 such that a comparison of Q1 2018 to Q1 2019 is meaningful. Q1 2018 operating results for Established Communities have been adjusted to reflect uncollectible lease revenue as a reduction of revenue for comparable presentation to Q1 2019 operating results. See Attachment 12, table 1, for additional detail and a reconciliation.
(2)
Reflects the effect of concessions amortized over the average lease term.
(3)
Represents the change in rental revenue if the Company were to include planned, current and previously completed Redevelopment Communities as part of its Established Communities portfolio.
(4)
With concessions reflected on a cash basis, rental revenue from Established Communities increased 3.2% from Q1 2018 to Q1 2019. With uncollectible lease revenue included as a component of operating expenses instead of as an adjustment to revenue, rental revenue from Established Communities would have increased 3.1%. See Attachment 12, table 1, for additional detail and a reconciliation.
 

10