AvalonBay Communities, Inc. Announces Third Quarter 2019 Operating Results

ARLINGTON, Va.–(BUSINESS WIRE)–AvalonBay Communities, Inc. (NYSE: AVB) (the “Company”) reported today that Net Income Attributable to Common Stockholders for the three months ended September 30, 2019 was $279,677,000. This resulted in an increase in Earnings per Share – diluted (“EPS”) for the three months ended September 30, 2019 of 43.9% to $2.00 from $1.39 for the prior year period.

Funds from Operations attributable to common stockholders – diluted (“FFO”) per share for the three months ended September 30, 2019 decreased 0.4% to $2.25 from $2.26 for the prior year period. Core FFO per share (as defined in this release) for the three months ended September 30, 2019 increased 2.6% to $2.34 from $2.28 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 September 30, 2019 to its results for the prior year period:

For the nine months ended September 30, 2019, EPS increased 4.0% to $4.43 from $4.26 for the prior year period, FFO per share increased 2.3% to $6.80 from $6.65 for the prior year period, and Core FFO per share increased 3.3% to $6.91 from $6.69 for the prior year period.

The following table compares the Company’s actual results for EPS, FFO per share and Core FFO per share for the nine months ended September 30, 2019 to its results for the prior year period:

Established Communities Operating Results for the Three Months Ended September 30, 2019 Compared to the Prior Year Period ^(a)

For Established Communities, total revenue increased $12,181,000, or 2.7%, to $461,233,000. Operating expenses for Established Communities increased $5,378,000, or 4.2%, to $134,208,000. NOI for Established Communities increased $6,803,000, or 2.1%, to $327,025,000. Rental revenue for Established Communities increased 2.7% as a result of an increase in Average Rental Rates of 2.9%, partially offset by a decrease in Economic Occupancy of 0.2%.

The following table reflects the percentage changes in rental revenue, operating expenses and NOI for Established Communities for the three months ended September 30, 2019 compared to the three months ended September 30, 2018:

Established Communities Operating Results for the Nine Months Ended September 30, 2019 Compared to the Prior Year Period ^(a)

For Established Communities, total revenue increased $41,702,000, or 3.1%, to $1,369,526,000. Operating expenses for Established Communities increased $10,713,000, or 2.8%, to $390,884,000. NOI for Established Communities increased $30,989,000, or 3.3%, to $978,642,000. Rental revenue for Established Communities increased 3.1% as a result of an increase in Average Rental Rates of 3.2%, 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 nine months ended September 30, 2019 compared to the nine months ended September 30, 2018:

^(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 January 1, 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 Definitions and Reconciliations, table 1, for additional detail and a reconciliation.

Development Activity

During the three months ended September 30, 2019, the Company completed the development of AVA Esterra Park, located in Redmond, WA. AVA Esterra Park contains 323 apartment homes and was constructed for a Total Capital Cost of $91,000,000.

During the nine months ended September 30, 2019, the Company completed the development of four communities containing an aggregate of 1,123 apartment homes for an aggregate Total Capital Cost of $334,000,000.

At September 30, 2019 (excluding The Park Loggia, discussed below), the Company had 20 Development Communities under construction that in the aggregate are expected to contain 6,700 apartment homes and 94,000 square feet of retail space. Estimated Total Capital Cost at completion for these Development Communities is $2,500,000,000.

The Park Loggia (previously referred to as 15 West 61st Street), located in New York, NY, is a mixed-used development with a projected Total Capital Cost of $626,000,000 that will contain 172 for-sale residential condominiums and 67,000 square feet of retail space upon completion. The Company intends to proceed with the sale of the residential condominiums and expects to commence settlement of condominium sales in the first quarter of 2020 after individual tax lots have been established for each condominium.

With the change in timing to 2020 for the first sales of condominiums at The Park Loggia and the disposition of certain wholly-owned operating communities, the Company is updating its projected EPS range for full year 2019 to $5.58 to $5.78, from the range provided in its July 2019 outlook of $5.78 to $5.98.

The projected Total Capital Cost of Development Rights at September 30, 2019 increased to $4.2 billion from $3.8 billion at June 30, 2019.

Acquisition Activity

During the three months ended September 30, 2019, the Company acquired the following two communities:

• Portico at Silver Spring Metro, located in Silver Spring, MD, containing 151 apartment homes, for a purchase price of $43,450,000; and
• Avalon Bonterra, located in Hialeah, FL, containing 314 apartment homes, for a purchase price of $90,000,000.

During the nine months ended September 30, 2019, the Company acquired four communities containing an aggregate of 935 apartment homes for an aggregate purchase price of $285,200,000.

Disposition Activity

Consolidated Apartment Communities

During the three months ended September 30, 2019, the Company sold four wholly-owned operating communities:

• AVA Stamford, located in Stamford, CT;
• Archstone Lexington, located in Flower Mound, TX;
• Memorial Heights Villages, located in Houston, TX; and
• Avalon Orchards, located in Marlborough, MA.

In the aggregate, the four communities contain 1,002 apartment homes and were sold for $259,600,000, resulting in a gain in accordance with GAAP of $130,399,000 and an Economic Gain of $59,157,000. The sales of Archstone Lexington and Memorial Heights Villages complete the Company’s exit from the Texas market.

During the nine months ended September 30, 2019, the Company sold six wholly-owned operating communities containing an aggregate of 1,660 apartment homes. These assets were sold for $427,600,000 and a weighted average Initial Year Market Cap Rate of 4.6%, resulting in a gain in accordance with GAAP of $167,385,000 and an Economic Gain of $72,152,000.

Liquidity and Capital Markets

At September 30, 2019, the Company did not have any borrowings outstanding under its $1,750,000,000 unsecured credit facility and had $334,754,000 in unrestricted cash and cash in escrow.

During the three months ended September 30, 2019, the Company entered into a forward contract under its current continuous equity program to sell 947,868 shares of common stock for approximate proceeds of $198,000,000, net of offering fees and discounts (the “Forward”). The forward price was established based on the stock price during intraday trading on September 25, 2019, the contract execution date. The final sales price and proceeds received by the Company will be determined on the date or dates of settlement, with adjustments during the term of the contract for the Company’s dividends as well as for a daily interest factor that varies with changes in the Overnight Bank Funding Rate. Settlement of the forward contract will occur on one or more dates not later than September 25, 2020.

During the nine months ended September 30, 2019, the Company had the following debt activity:

• The Company issued $450,000,000 principal amount of unsecured notes in a public offering under its existing shelf registration statement for net proceeds of $446,877,000. The notes mature in June 2029 and were issued with a 3.30% coupon. The effective interest rate of the notes is 3.66%, including the impact of an interest rate hedge and offering costs.
• The Company reduced its outstanding secured indebtedness by $123,502,000. The Company repaid $153,752,000 principal amount of mortgage notes secured by six operating communities, at par, of which $140,389,000 was variable rate and $13,363,000 had a 2.99% fixed rate. The Company utilized $47,174,000 of restricted cash held in principal reserve funds as partial repayment of this indebtedness. These repayments were partially offset by a 3.26% fixed rate $30,250,000 secured mortgage that matures in August 2029, which was entered into in conjunction with the acquisition of a community.

In addition, during the nine months ended September 30, 2019, the Company sold 994,634 shares of common stock for net proceeds of $196,700,000. These sales were completed under both the Company’s previous and current continuous equity programs.

The Company’s annualized Net Debt-to-Core EBITDAre (as defined in this release) for the third quarter of 2019 was 4.7 times.

Fourth Quarter Conference Schedule

The Company is scheduled to participate in NAREIT’s REITworld Conference in Los Angeles, CA, from November 12 – 14, 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 on the Company’s website at http://www.avalonbay.com/events one business day in advance of the conference.

Other Matters

The Company will hold a conference call on October 29, 2019 at 11:00 AM ET to review and answer questions about this release, its third quarter 2019 results, the Attachments (described below) and related matters. To participate on the call, dial 800-458-4121 and use conference id: 1125707.

To hear a replay of the call, which will be available from October 29, 2019 at 4:00 PM ET to November 5, 2019 at 4:00 PM ET, dial 888-203-1112 and use conference id: 1125707. 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 October 29, 2019.

About AvalonBay Communities, Inc.

As of September 30, 2019, the Company owned or held a direct or indirect ownership interest in 292 apartment communities containing 85,647 apartment homes in 11 states and the District of Columbia, of which 20 communities were under development and five 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, landlord-tenant laws and other economic or regulatory conditions may result in lower than expected occupancy and/or rental rates and adversely affect the profitability of our communities; delays in completing development, redevelopment and/or lease-up may result in increased financing and construction costs and may delay and/or reduce the profitability of a community; debt and/or equity financing for development, redevelopment or acquisitions of communities may not be available or may not be available on favorable terms; we may be unable to obtain, or experience delays in obtaining, necessary governmental permits and authorizations; expenses may result in communities that we develop or redevelop failing to achieve expected profitability; our assumptions concerning risks relating to our lack of control of joint ventures and our abilities to successfully dispose of certain assets may not be realized; our assumptions and expectations in our financial outlook may prove to be too optimistic; the timing and net proceeds of condominium sales may not equal our current expectations; and the expected proceeds from settlement of the Forward are subject to adjustment for changes in the Overnight Bank Funding Rate and the amount of dividends we pay on our common stock, and our receipt of settlement proceeds assumes that we will settle the Forward by physical delivery. 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.

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 13, Definitions and Reconciliations of Non-GAAP Financial Measures and Other Terms. Attachment 13 is included in the full earnings release available at the Company’s website at http://www.avalonbay.com/earnings. This wire distribution includes only the following definitions and reconciliations.

Average Rental Rates are calculated by the Company as 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 January 1, 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):

Other Reported Operating Results

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

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.

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Contacts

Jason Reilley

Vice President of Investor Relations

703-317-4681

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