AvalonBay Communities, Inc. Announces Second Quarter 2023 Operating Results and Third Quarter and Full Year 2023 Financial Outlook

ARLINGTON, Va.–(BUSINESS WIRE)–AvalonBay Communities, Inc. (NYSE: AVB) (the “Company”) reported Earnings per Share – diluted (“EPS”), Funds from Operations attributable to common stockholders – diluted (“FFO”) per share and Core FFO per share (as defined in this release) for the three and six months ended June 30, 2023 and 2022 as detailed below.

The following table compares the Company’s actual results for EPS, FFO per share and Core FFO per share for the three months ended June 30, 2023 to its results for the prior year period:

The following table compares the Company’s actual results for EPS, FFO per share and Core FFO per share for the three months ended June 30, 2023 to its April 2023 outlook:

The following table compares the Company’s actual results for EPS, FFO per share and Core FFO per share for the six months ended June 30, 2023 to its results for the prior year period:

Same Store Operating Results for the Three Months Ended June 30, 2023 Compared to the Prior Year Period

Same Store total revenue increased $37,062,000, or 6.2%, to $636,890,000. Same Store Residential rental revenue increased $37,080,000, or 6.3%, to $629,883,000, as detailed in the following table:

Same Store Residential operating expenses increased $14,769,000, or 8.2%, to $195,251,000 and Same Store Residential NOI increased $22,207,000, or 5.4%, to $435,057,000.

The following table presents percentage changes in Same Store Residential rental revenue, operating expenses and NOI for the three months ended June 30, 2023 compared to the three months ended June 30, 2022:

Same Store Operating Results for the Six Months Ended June 30, 2023 Compared to the Prior Year Period

Same Store total revenue increased $90,722,000, or 7.7%, to $1,261,641,000. Same Store Residential rental revenue increased $90,737,000, or 7.8%, to $1,247,386,000, as detailed in the following table:

Same Store Residential operating expenses increased $27,547,000, or 7.7%, to $386,292,000 and Same Store Residential NOI increased $63,200,000, or 7.9%, to $861,996,000.

The following table presents percentage changes in Same Store Residential rental revenue, operating expenses and NOI for the six months ended June 30, 2023 compared to the six months ended June 30, 2022:

Development Activity

Consolidated Development Communities

During the three months ended June 30, 2023, the Company completed the development of two communities:

• Avalon Harrison, located in Harrison, NY; and
• Avalon Brighton, located in Boston, MA.

These communities contain an aggregate of 323 apartment homes and 27,000 square feet of commercial space and were developed for an aggregate Total Capital Cost of $184,000,000.

During the three months ended June 30, 2023, the Company started the development of Avalon Hunt Valley West, located in Hunt Valley, MD. Avalon Hunt Valley West is expected to contain 322 apartment homes when completed and be developed for an estimated Total Capital Cost of $109,000,000.

At June 30, 2023, the Company had 17 consolidated Development communities under construction that are expected to contain 5,761 apartment homes and 29,000 square feet of commercial space. Estimated Total Capital Cost at completion for these Development communities is $2,293,000,000.

Disposition Activity

Consolidated Apartment Communities

During the three months ended June 30, 2023, the Company sold two wholly-owned communities:

• eaves Daly City, located in Daly City, CA; and
• Avalon at Newton Highlands, located in Newton, MA.

In aggregate, these communities contain 489 apartment homes and were sold for $237,000,000 and a weighted average Initial Market Cap Rate of 4.5%, resulting in a gain in accordance with GAAP of $187,341,000 and an Economic Gain of $123,278,000.

In July 2023, the Company sold Avalon Columbia Pike, located in Arlington, VA. Avalon Columbia Pike contains 269 apartments homes and 27,000 square feet of commercial space and was sold for $105,000,000.

Structured Investment Program (the “SIP”) Activity

In July 2023, the Company entered into an additional mezzanine loan commitment, agreeing to fund up to $20,900,000 of a multifamily development project in North Carolina. As of the date of this release, the Company had commitments to fund four mezzanine loans for the development of multifamily projects in the Company’s markets, up to $113,275,000 in the aggregate. At the date of this release, the commitments had a weighted average rate of return of 10.4% and mature at various dates on or before July 2027. As of June 30, 2023, the Company had funded $55,869,000 of these commitments.

Liquidity and Capital Markets

As of June 30, 2023, the Company did not have any borrowings outstanding under its $2,250,000,000 unsecured revolving credit facility (the “Credit Facility”) or its $500,000,000 unsecured commercial paper note program. The commercial paper program is backstopped by the Company’s commitment to maintain available borrowing capacity under its Credit Facility in an amount equal to actual borrowings under the program.

In addition, at June 30, 2023, the Company had $769,622,000 in unrestricted cash and cash equivalents and $177,376,000 in cash in escrow, which is composed of principal reserve funds for secured borrowing arrangements as well as proceeds from a disposition held in escrow for subsequent tax deferred exchange activity.

The Company’s annualized Net Debt-to-Core EBITDAre (as defined in this release) for the second quarter of 2023 was 4.1 times and Unencumbered NOI (as defined in this release) for the six months ended June 30, 2023 was 95%.

During the six months ended June 30, 2023, the Company repaid $250,000,000 principal amount of its 2.85% unsecured notes at its maturity.

During the three months ended June 30, 2023, the Company settled the outstanding equity forward contracts entered into in April 2022 (the “Equity Forward”), issuing 2,000,000 shares of common stock for $491,912,000, or $245.96 per share, net of offering fees and discounts.

Stock Repurchase Program

Under the Company’s stock repurchase program, during the six months ended June 30, 2023, the Company repurchased 11,800 shares of its common stock at an average price of $161.96 per share.

Legal Update

In 2022 and early 2023, the Company was named as a defendant in cases alleging antitrust violations by RealPage, Inc. and owners and/or operators of multifamily housing which utilize revenue management systems provided by RealPage, Inc. The complaints allege a conspiracy to artificially inflate rental rates for multifamily residential real estate above competitive levels. The Company recently engaged with the plaintiffs’ counsel to explain why it believes these cases are without merit as they pertain to the Company. Following these discussions, the plaintiffs filed a notice of voluntary dismissal in July 2023, which resulted in the Company being dismissed without prejudice from these cases.

Third Quarter and Full Year 2023 Financial Outlook

For its third quarter and full year 2023 financial outlook, the Company expects the following:

The following table compares the Company’s actual results for EPS, FFO per share and Core FFO per share for the second quarter 2023 to the mid-point of its third quarter 2023 financial outlook:

The following table compares the mid-point of the Company’s July 2023 outlook for EPS, FFO per share and Core FFO per share for the full year 2023 to its April 2023 financial outlook:

Other Matters

The Company will hold a conference call on August 1, 2023 at 1:00 PM ET to review and answer questions about this release, its second quarter 2023 results, the Attachments (described below) and related matters. To participate on the call, dial 877-407-9716.

To hear a replay of the call, which will be available from August 1, 2023 at 4:00 PM ET to September 1, 2023, dial 844-512-2921 and use replay passcode: 13734360. A webcast of the conference call will also be available at https://investors.avalonbay.com, and an online playback of the webcast will be available for at least seven days following the call.

The Company produces Earnings Release Attachments (the “Attachments”) that provide detailed information regarding operating, development, redevelopment, disposition and acquisition activity. These Attachments are considered a part of this earnings release and are available in full with this earnings release via the Company’s website at https://investors.avalonbay.com. To receive future press releases via e-mail, please submit a request through https://investors.avalonbay.com/email_notification.

In addition to the Attachments, the Company is providing a teleconference presentation that will be available on the Company’s website at https://investors.avalonbay.com subsequent to this release and before the market opens on August 1, 2023.

About AvalonBay Communities, Inc.

As of June 30, 2023, the Company owned or held a direct or indirect ownership interest in 294 apartment communities containing 88,659 apartment homes in 12 states and the District of Columbia, of which 18 communities were under development and one community was under redevelopment. The Company is an equity REIT in the business of developing, redeveloping, acquiring and managing apartment communities in leading metropolitan areas in New England, the New York/New Jersey Metro area, the Mid-Atlantic, the Pacific Northwest, and Northern and Southern California, as well as in the Company’s expansion regions of Raleigh-Durham and Charlotte, North Carolina, Southeast Florida, Dallas and Austin, Texas, and Denver, Colorado. More information may be found on the Company’s website at https://www.avalonbay.com. For additional information, please contact Jason Reilley, Vice President of Investor Relations, at 703-317-4681.

Forward-Looking Statements

This release, including its Attachments, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements, which you can identify by the Company’s use of words such as “expects,” “plans,” “estimates,” “anticipates,” “projects,” “intends,” “believes,” “outlook,” “may,” “shall,” “will,” “pursue” and similar expressions that predict or indicate future events and trends and that do not report historical matters, are based on the Company’s expectations, forecasts and assumptions at the time of this release, which may not be realized and involve risks and uncertainties that cannot be predicted accurately or that might not be anticipated. These could cause actual results, performance or achievements to differ materially from the anticipated future results, performance or achievements expressed or implied by the forward-looking statements. Risks and uncertainties that might cause such differences include the following: we may abandon development or redevelopment opportunities for which we have already incurred costs; adverse capital and credit market conditions, including rising interest rates, may affect our access to various sources of capital and/or cost of capital, which may affect our business activities, earnings and common stock price, among other things; changes in local employment conditions, demand for apartment homes, supply of competitive housing products, landlord-tenant laws, including the adoption of rent control regulations, and other economic or regulatory conditions may result in lower than expected occupancy and/or rental rates and adversely affect the profitability of our communities; delays in completing development, redevelopment and/or lease-up, and general price inflation, may result in increased financing and construction costs and may delay and/or reduce the profitability of a community; debt and/or equity financing for development, redevelopment or acquisitions of communities may not be available or may not be available on favorable terms; we may be unable to obtain, or experience delays in obtaining, necessary governmental permits and authorizations; expenses may result in communities that we develop or redevelop failing to achieve expected profitability; our assumptions concerning risks relating to joint ventures and our ability to successfully dispose of certain assets may not be realized; investments made under the SIP in either mezzanine debt or preferred equity of third-party multifamily development may not be repaid as expected; our assumptions and expectations in our financial outlook may prove to be too optimistic; litigation costs and consequences may exceed our expectations; and risks related to an outbreak of disease or other public health event may affect the multifamily industry and general economy, including from measures taken by businesses and the government and the preferences of consumers and businesses for living and working arrangements both during and after such an event. 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, 2022 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 2023 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 https://investors.avalonbay.com. This wire distribution includes only the following definitions and reconciliations.

Average Monthly Rental Revenue per Occupied Home is calculated by the Company as Residential rental revenue in accordance with GAAP, divided by the weighted average number of occupied apartment homes.

Commercial represents results attributable to the non-apartment components of the Company’s mixed-use communities and other non-residential operations.

Development is composed of consolidated communities that are either currently under construction, or were under construction and were completed during the current year. These communities may be partially or fully complete and operating.

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

Contacts

Jason Reilley, Vice President of Investor Relations, 703-317-4681

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