AvalonBay Communities, Inc. (NYSE: AVB) (the "Company") reported today
that Net Income Attributable to Common Stockholders ("Net Income") for
the quarter ended March 31, 2012 was $57,758,000. This resulted in
Earnings per Share - diluted ("EPS") of $0.60 for the quarter ended
March 31, 2012, compared to EPS of $0.35 for the comparable period of
2011, an increase of 71.4%.
The increase in EPS for the quarter ended March 31, 2012 over the prior
year period is due primarily to an increase in Net Operating Income
("NOI") from both existing and newly developed and acquired communities
and reduced interest expense.
Funds from Operations attributable to common stockholders - diluted
("FFO") per share for the quarter ended March 31, 2012 increased 18.5%
to $1.28 from $1.08 for the comparable period of 2011.
The Company's FFO and EPS for the quarter ended March 31, 2012 include a
one-time, non-cash charge for the early repayment of a variable rate
secured note of approximately $0.01 per share. FFO and EPS for the
quarter ended March 31, 2011 include approximately $0.03 per share for
the recognition of interest income associated with escrow funds for
certain tax exempt financings. Adjusting for these non-routine items,
FFO per share for the three months ended March 31, 2012 would have
increased by 22.9% over the prior year period.
The following table compares the Company's first quarter 2012 actual
results to its February 2012 outlook:
|
First Quarter 2012 Results
|
Comparison to February 2012 Outlook
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
|
|
|
|
|
FFO per share 1Q 2012 - February 2012 Outlook (1)
|
|
$
|
1.22
|
|
|
|
|
|
|
|
Community NOI (2)
|
|
|
0.04
|
|
|
Interest expense and other
|
|
|
0.02
|
|
|
|
|
|
|
FFO per share 1Q 2012 Reported Results
|
|
$
|
1.28
|
(1)
|
|
Represents the mid-point of the Company's 1Q 2012 outlook.
|
(2)
|
|
Favorable community NOI includes $0.01 for revenues and $0.03 for
operating expenses, half of which are timing related and expected
to be incurred in 2012.
|
|
|
|
Commenting on the Company's results, Tim Naughton, CEO and President,
said, "Same-store NOI growth exceeded 10% for the second consecutive
quarter, the first time that has occurred in over 10 years. With solid
fundamentals, rising rents, and attractive land and construction costs,
delivering new communities through development will continue to drive
FFO growth."
Operating Results for the Quarter Ended March 31, 2012 Compared to
the Prior Year Period
For the Company, including discontinued operations, total revenue
increased by $18,679,000, or 7.9% to $254,487,000. For Established
Communities, rental revenue increased 6.6%, attributable to
increases in average rental rates of 6.4% and Economic Occupancy of
0.2%. As a result, total revenue for Established Communities increased
$11,045,000 to $179,559,000. Operating expenses for Established
Communities decreased $581,000, or 1.1%, to $54,163,000. Accordingly,
NOI for Established Communities increased by 10.2%, or $11,626,000, to
$125,396,000.
The following table reflects the percentage changes in rental revenue,
operating expenses and NOI for Established Communities from the first
quarter of 2012 compared to the first quarter of 2011:
|
|
|
|
|
|
|
|
|
Q1 2012 Compared to Q1 2011
|
|
|
|
|
|
|
|
|
|
|
|
Rental
|
|
Operating
|
|
|
|
% of
|
|
|
Revenue
|
|
Expenses
|
|
NOI
|
|
NOI (1)
|
|
|
|
|
|
|
|
|
|
New England
|
|
5.1
|
%
|
|
0.8
|
%
|
|
7.5
|
%
|
|
19.0
|
%
|
Metro NY/NJ
|
|
6.4
|
%
|
|
(0.9
|
%)
|
|
9.8
|
%
|
|
29.4
|
%
|
Mid-Atlantic
|
|
5.4
|
%
|
|
2.5
|
%
|
|
6.4
|
%
|
|
14.2
|
%
|
Pacific NW
|
|
8.5
|
%
|
|
1.1
|
%
|
|
11.9
|
%
|
|
3.4
|
%
|
No. California
|
|
10.3
|
%
|
|
(1.8
|
%)
|
|
15.5
|
%
|
|
19.6
|
%
|
So. California
|
|
5.4
|
%
|
|
(7.2
|
%)
|
|
11.9
|
%
|
|
14.4
|
%
|
Total
|
|
6.6
|
%
|
|
(1.1
|
%)
|
|
10.2
|
%
|
|
100.0
|
%
|
(1) Total represents each region's % of total NOI from the
Company, including discontinued operations.
|
|
Development Activity
During the first quarter of 2012, the Company started the construction
of Avalon Mosaic, located in Tysons Corner, VA. This community will
contain 531 apartment homes when completed, and will be developed for an
estimated Total Capital Cost of $120,900,000.
Redevelopment Activity
During the first quarter of 2012, the Company completed the
redevelopment of two communities, one of which was redeveloped under the
Company's Eaves by Avalon brand and the second under the
Company's Avalon brand. These communities contain 758 apartment
homes and were redeveloped for $32,500,000, excluding costs incurred
prior to redevelopment.
Disposition Activity
During the first quarter of 2012, AvalonBay Value Added Fund, L.P.
("Fund I"), a private discretionary real estate investment vehicle in
which the Company holds an equity interest of approximately 15%, sold
two communities located in Chicago, IL: Avalon Lakeside, containing 204
apartment homes, was sold for $20,500,000 and Avalon Poplar Creek,
containing 196 apartment homes, was sold for $27,200,000. The Company's
proportionate share of the aggregate gain in accordance with GAAP for
these dispositions was $1,086,000.
Acquisition Activity
During the first quarter of 2012, the Company acquired The Mark
Pasadena, located in Pasadena, CA. The Mark Pasadena contains 84
apartment homes and was acquired for a purchase price of $19,400,000.
Also during the first quarter of 2012, AvalonBay Value Added Fund II,
L.P. ("Fund II"), a private discretionary real estate investment vehicle
in which the Company holds an equity interest of approximately 31%,
acquired Avalon Watchung, a 334 apartment home community located in
Watchung, NJ, for $63,000,000. This is the final acquisition for Fund
II, which brings the total invested capital to $836,236,000 at March 31,
2012.
Financing, Liquidity and Balance Sheet Statistics
At March 31, 2012, the Company had no amounts outstanding under its
$750,000,000 unsecured credit facility.
At March 31, 2012, the Company had $321,136,000 in unrestricted cash and
cash in escrow.
Unencumbered NOI as a percentage of total NOI generated by real estate
assets for the quarter ended March 31, 2012 was 71%. Interest Coverage
for the first quarter of 2012 was 4.6 times.
Debt Repayment Activity
In January 2012, the Company repaid $179,400,000 principal amount of its
5.5% coupon unsecured notes pursuant to their scheduled maturity.
In February 2012, the Company repaid a variable rate secured mortgage
note in the amount of $48,500,000 in advance of its November 2039
scheduled maturity date at par. As part of this transaction, the Company
incurred a non-cash charge of $1,179,000 for the write off of deferred
financing costs, which was included in the Company's February 2012
outlook. The Company recognized this charge as a loss on extinguishment
of debt in the first quarter of 2012.
Second Quarter 2012 Financial Outlook
For the second quarter of 2012, the Company expects EPS in the range of
$1.86 to $1.90 and expects Projected FFO per share in the range of $1.30
to $1.34.
Second Quarter 2012 Conference/Event Schedule
The Company is scheduled to participate in the NAREIT Institutional
Investor Forum in New York, NY, from June 12-14, 2012. The Company will
present and conduct a question and answer session at the conference.
Management may discuss the Company's current operating environment;
operating trends; development, redevelopment, disposition and
acquisition activity; financial outlook; portfolio strategy and other
business and financial matters affecting the Company. Details on how to
access a webcast of the Company's presentation will be available in
advance of the conference event at the Company's website at http://www.avalonbay.com/events.
Other Matters
The Company will hold a conference call on April 26, 2012 at 1:00 PM ET
to review and answer questions about this release, its first quarter
2012 results, the Attachments (found in the full Earnings Release) and
related matters. To participate on the call, dial 1-877-510-2397
domestically and 1-763-416-6924 internationally.
To hear a replay of the call, which will be available from April 26,
2012 at 3:00 PM ET to May 4, 2012 at 11:59 PM ET, dial 1-800-585-8367
domestically and 1-404-537-3406 internationally, and use Access Code:
69432203. 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 30
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.
About AvalonBay Communities, Inc.
As of March 31, 2012, the Company owned or held a direct or indirect
ownership interest in 199 apartment communities containing 59,090
apartment homes in ten states and the District of Columbia, of which 20
communities were under construction and 10 communities were under
reconstruction. The Company is an equity REIT in the business of
developing, redeveloping, acquiring and managing apartment communities
in high barrier-to-entry markets of the United States. More information
may be found on the Company's website at http://www.avalonbay.com.
For additional information, please contact John Christie, Senior
Director of Investor Relations at 1-703-317-4747 or Thomas J. Sargeant,
Chief Financial Officer at 1-703-317-4635.
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. You can identify these forward-looking statements 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. Actual results may
differ materially from those expressed or implied by the forward-looking
statements as a result of risks and uncertainties, which include the
following: 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;
and increases in costs of materials, labor or other expenses may result
in communities that we develop or redevelop failing to achieve expected
profitability. Additional discussions of risks and uncertainties 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, 2011 under the heading "Risk Factors" and under the
heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Forward-Looking Statements" and in subsequent
quarterly reports on Form 10-Q. The Company does not undertake a duty to
update forward-looking statements, including its expected second quarter
and full year 2012 operating results. 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 and further explained on Attachment 13,
"Definitions and Reconciliations of Non-GAAP Financial Measures and
Other Terms." Attachment 13 is included in the full earnings release
available at the Company's website at http://www.avalonbay.com/earnings.
This wire distribution includes only definitions and reconciliations of
the following non-GAAP financial measures:
FFO is determined based on a definition
adopted by the Board of Governors of the National Association of Real
Estate Investment Trusts ("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, extraordinary gains or
losses (as defined by GAAP), 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. Management generally
considers FFO to be an appropriate supplemental measure of operating
performance because, 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 performance of a company's real estate between periods or as
compared to different companies. A reconciliation of FFO to Net income
attributable to common stockholders is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Q1
|
|
Q1
|
|
|
|
|
|
2012
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common
|
|
|
|
|
|
|
|
|
|
stockholders
|
|
$
|
57,758
|
|
$
|
30,341
|
|
|
Depreciation - real estate assets,
|
|
|
|
|
|
|
|
|
|
including discontinued operations
|
|
|
|
|
|
|
|
|
|
and joint venture adjustments
|
|
|
65,292
|
|
|
63,194
|
|
|
Distributions to noncontrolling interests,
|
|
|
|
|
|
|
|
|
|
including discontinued operations
|
|
|
7
|
|
|
7
|
|
|
Gain on sale of unconsolidated entities
|
|
|
|
|
|
|
|
|
|
holding previously depreciated real estate
|
|
|
|
|
|
|
|
|
|
assets
|
|
|
(1,086)
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO attributable to common stockholders
|
|
$
|
121,971
|
|
$
|
93,542
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding - diluted
|
|
|
95,653,779
|
|
|
86,997,530
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - diluted
|
|
$
|
0.60
|
|
$
|
0.35
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO per common share - diluted
|
|
$
|
1.28
|
|
$
|
1.08
|
|
|
|
|
|
|
|
|
|
Projected FFO, as provided within this
release in the Company's outlook, is calculated on a basis consistent
with historical FFO, and is therefore considered to be an appropriate
supplemental measure to projected Net Income from projected operating
performance. A reconciliation of the range provided for Projected FFO
per share (diluted) for the second quarter 2012 to the range provided
for projected EPS (diluted) is as follows:
|
|
|
|
|
|
|
|
|
Low
|
|
High
|
|
|
|
|
Range
|
|
Range
|
|
|
|
|
|
|
|
|
|
Projected EPS (diluted) - Q2 2012
|
|
$
|
1.86
|
|
$
|
1.90
|
|
|
Projected depreciation (real estate related)
|
|
|
0.67
|
|
|
0.71
|
|
|
Projected gain on sale of operating communities
|
|
|
(1.23)
|
|
|
(1.27)
|
|
|
|
|
|
|
|
|
|
Projected FFO per share (diluted) - Q2 2012
|
|
$
|
1.30
|
|
$
|
1.34
|
|
|
|
|
|
|
|
NOI is defined by the Company as total
property revenue less direct property operating expenses (including
property taxes), and excludes corporate-level income (including
management, development and other fees), corporate-level property
management and other indirect operating expenses, investments and
investment management expenses, expensed development and other pursuit
costs, net interest expense, gain (loss) on extinguishment of debt,
general and administrative expense, joint venture income (loss),
depreciation expense, impairment loss on land holdings, gain on sale of
real estate assets and income from discontinued operations. The Company
considers NOI to be an appropriate supplemental 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 corporate-level
property management overhead or general and administrative costs. This
is more reflective of the operating performance of a community, and
allows for an easier comparison of the operating performance of single
assets or groups of assets. In addition, because prospective buyers of
real estate have different overhead structures, with varying marginal
impact to overhead by 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 (from continuing operations) to Net Income, as well as a breakdown
of NOI by operating segment, is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1
|
|
Q1
|
|
Q4
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
57,609
|
|
$
|
30,537
|
|
$
|
322,965
|
|
|
Indirect operating expenses, net of corporate income
|
|
|
8,036
|
|
|
7,037
|
|
|
8,087
|
|
|
Investments and investment management expense
|
|
|
1,446
|
|
|
1,191
|
|
|
1,266
|
|
|
Expensed acquisition, development and other pursuit costs
|
|
|
239
|
|
|
651
|
|
|
330
|
|
|
Interest expense, net
|
|
|
33,626
|
|
|
42,971
|
|
|
37,640
|
|
|
Loss on extinguishment of debt, net
|
|
|
1,179
|
|
|
--
|
|
|
1,940
|
|
|
General and administrative expense
|
|
|
9,710
|
|
|
7,292
|
|
|
7,847
|
|
|
Joint venture loss (income)
|
|
|
(2,175)
|
|
|
(503)
|
|
|
(1,607)
|
|
|
Depreciation expense
|
|
|
62,991
|
|
|
59,650
|
|
|
62,423
|
|
|
Gain on sale of real estate assets
|
|
|
--
|
|
|
--
|
|
|
(273,415)
|
|
|
(Income) loss from discontinued operations
|
|
|
(921)
|
|
|
676
|
|
|
1,657
|
|
|
|
|
|
|
|
|
|
|
|
NOI from continuing operations
|
|
$
|
171,740
|
|
$
|
149,502
|
|
$
|
169,133
|
|
|
|
|
|
|
|
|
|
|
|
Established:
|
|
|
|
|
|
|
|
|
|
New England
|
|
$
|
22,065
|
|
$
|
20,529
|
|
$
|
22,574
|
|
|
|
Metro NY/NJ
|
|
|
39,591
|
|
|
36,052
|
|
|
38,571
|
|
|
|
Mid-Atlantic
|
|
|
18,816
|
|
|
17,676
|
|
|
19,063
|
|
|
|
Pacific NW
|
|
|
5,572
|
|
|
4,981
|
|
|
5,229
|
|
|
|
No. California
|
|
|
22,793
|
|
|
19,739
|
|
|
21,917
|
|
|
|
So. California
|
|
|
16,559
|
|
|
14,793
|
|
|
16,915
|
|
|
|
|
Total Established
|
|
|
125,396
|
|
|
113,770
|
|
|
124,269
|
|
|
Other Stabilized
|
|
|
23,932
|
|
|
17,203
|
|
|
22,580
|
|
|
Development/Redevelopment
|
|
|
22,412
|
|
|
18,529
|
|
|
22,284
|
|
|
|
|
|
|
|
|
|
|
|
NOI from continuing operations
|
|
$
|
171,740
|
|
$
|
149,502
|
|
$
|
169,133
|
|
|
|
|
|
|
|
|
|
NOI as reported by the Company does not include the operating results
from discontinued operations (i.e., assets sold during the period
January 1, 2011 through March 31, 2012 or classified as held for sale at
March 31, 2012). A reconciliation of NOI from communities sold or
classified as discontinued operations to Net Income (loss) for these
communities is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1
|
|
Q1
|
|
|
|
|
|
2012
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
$ 921
|
|
$ (676)
|
|
|
Interest expense, net
|
|
80
|
|
1,300
|
|
|
Depreciation expense
|
|
321
|
|
1,649
|
|
|
|
|
|
|
|
|
|
|
|
NOI from discontinued operations
|
|
$ 1,322
|
|
$ 2,273
|
|
|
|
|
|
|
|
|
|
|
NOI from assets sold
|
|
--
|
|
1,095
|
|
|
NOI from assets held for sale
|
|
1,322
|
|
1,178
|
|
|
|
|
|
|
|
|
|
|
|
NOI from discontinued operations
|
|
$ 1,322
|
|
$ 2,273
|
|
|
|
|
|
|
|
|
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. Projected gross potential for development
communities and dispositions is 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 or redevelopment
will achieve the Projected NOI as described in this release.
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):
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|
|
|
|
|
|
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Q1
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|
Q1
|
|
|
|
|
2012
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|
2011
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|
|
|
|
|
|
|
|
|
Rental revenue (GAAP basis)
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|
$
|
179,497
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|
$
|
168,399
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|
|
Concessions amortized
|
|
|
196
|
|
|
1,594
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|
|
Concessions granted
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|
|
(69)
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|
|
(758)
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|
|
|
|
|
|
|
|
Rental revenue (with
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|
|
|
|
concessions on a cash basis)
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|
$
|
179,624
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|
$
|
169,235
|
|
|
|
|
|
|
|
|
|
% change -- GAAP revenue
|
|
|
|
|
6.6%
|
|
|
|
|
|
|
|
|
|
% change -- cash revenue
|
|
|
|
|
6.1%
|
|
|
|
|
|
|
|
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 each of the communities presented is
estimated based on their respective final settlement statements. A
reconciliation of Economic Gain (Loss) to gain on sale in accordance
with GAAP for the quarter ended March 31, 2012 as well as prior years'
activities is presented in the full earnings release.
Interest Coverage is calculated by the
Company as EBITDA from continuing operations, excluding land gains and
gain on the sale of investments in real estate joint ventures, divided
by the sum of interest expense, net, and preferred dividends. 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. 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.
A reconciliation of EBITDA and a calculation of Interest Coverage for
the first quarter of 2012 are as follows (dollars in thousands):
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|
|
|
|
|
|
Net income attributable to common stockholders
|
|
$
|
57,758
|
|
|
Interest expense, net
|
|
|
33,626
|
|
|
Interest expense (discontinued operations)
|
|
|
80
|
|
|
Depreciation expense
|
|
|
62,991
|
|
|
Depreciation expense (discontinued operations)
|
|
|
321
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
154,776
|
|
|
|
|
|
|
|
EBITDA from continuing operations
|
|
$
|
153,454
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|
|
EBITDA from discontinued operations
|
|
|
1,322
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
154,776
|
|
|
|
|
|
|
|
EBITDA from continuing operations
|
|
$
|
153,454
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
33,626
|
|
|
|
|
|
|
|
|
Interest coverage
|
|
|
4.6
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|
|
|
|
|
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, all as
determined in accordance with GAAP. For redevelopment communities, Total
Capital Cost excludes costs incurred prior to the start of redevelopment
when indicated. With respect to communities where development or
redevelopment was completed in a prior or the current period, Total
Capital Cost reflects the actual cost incurred, plus any contingency
estimate made by management. Total Capital Cost for communities
identified as having joint venture ownership, either during construction
or upon construction completion, represents the total projected joint
venture contribution amount. For joint ventures not in construction,
Total Capital Cost is equal to gross real estate cost.
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 $200 - $300 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, amortization and extraordinary items. For this
purpose, management's projection of operating expenses for the community
includes a management fee of 3.0% - 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.
Unleveraged IRR on sold communities refers
to the internal rate of return calculated by the Company considering the
timing and amounts of (i) total revenue during the period owned by the
Company and (ii) the gross sales price net of selling costs, offset by
(iii) the undepreciated capital cost of the communities at the time of
sale and (iv) total direct operating expenses during the period owned by
the Company. Each of the items (i), (ii), (iii) and (iv) are calculated
in accordance with GAAP.
The calculation of Unleveraged IRR does not include an adjustment for
the Company's general and administrative expense, interest expense, or
corporate-level property management and other indirect operating
expenses. Therefore, Unleveraged IRR is not a substitute for Net Income
as a measure of our performance. Management believes that the
Unleveraged IRR achieved during the period a community is owned by the
Company is useful because it is one indication of the gross value
created by the Company's acquisition, development or redevelopment,
management and sale of a community, before the impact of indirect
expenses and Company overhead. The Unleveraged IRR achieved on the
communities as cited in this release should not be viewed as an
indication of the gross value created with respect to other communities
owned by the Company, and the Company does not represent that it will
achieve similar Unleveraged IRRs upon the disposition of other
communities. The weighted average Unleveraged IRR for sold communities
is weighted based on all cash flows over the holding period for each
respective community, including net sales proceeds.
Unencumbered NOI as calculated by the
Company represents NOI generated by real estate assets unencumbered by
either outstanding secured debt or land leases (excluding land leases
with purchase options that were put in place for governmental incentives
or tax abatements) 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, 2012 is as follows (dollars in
thousands):
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|
|
|
|
|
|
NOI for Established Communities
|
$ 125,396
|
|
|
NOI for Other Stabilized Communities
|
23,932
|
|
|
NOI for Development/Redevelopment communities
|
22,412
|
|
|
|
Total NOI generated by real estate assets
|
171,740
|
|
|
NOI on encumbered assets
|
49,481
|
|
|
|
NOI on unencumbered assets
|
122,259
|
|
|
|
|
|
|
|
|
|
|
|
|
Unencumbered NOI
|
71%
|
|
|
|
|
Established Communities are identified by
the Company as 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 of the beginning of the
prior year. Therefore, for 2012, Established Communities are
consolidated communities that have stabilized operations as of January
1, 2011 and are not conducting or planning to conduct substantial
redevelopment activities within the current year. Established
Communities do not include communities that are currently held for sale
or planned for disposition during the current year.
Economic Occupancy is defined as total
possible revenue less vacancy loss as a percentage of total possible
revenue. Total possible revenue 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.

AvalonBay Communities, Inc.
John Christie, 1-703-317-4747
Senior
Director of Investor Relations
or
Thomas J. Sargeant,
1-703-317-4635
Chief Financial Officer