Exhibit 99.1

 

 

For Immediate News Release

April 30, 2013

 

AVALONBAY COMMUNITIES, INC. ANNOUNCES

FIRST QUARTER 2013 OPERATING RESULTS

 

 

Copyright Ó 2013 AvalonBay Communities, Inc. All Rights Reserved

 

 

 

Copyright Ó 2013 AvalonBay Communities, Inc. All Rights Reserved

 

 

 

Copyright Ó 2013 AvalonBay Communities, Inc. All Rights Reserved

 

 

Copyright Ó 2013 AvalonBay Communities, Inc. All Rights Reserved

 

 

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):

 

 

 

 

The Company’s results for the three months ended March 31, 2013 and the comparable prior year period include the non-routine items outlined in the following table:

 

 

 

Non-Routine Items

Decrease (Increase) in Net Income and FFO

(dollars in thousands)

 

		Q1		Q1
		2013		2012
Acquisition costs (1)		$ 39,814		$ 92
Joint venture related losses and costs (2)		30,006		203
Interest rate protection agreement unrealized gain		(1,414	)	-
Net interest expense - unsecured debt (3)		835		-
Compensation plan redesign and severance related costs		1,475		307
Prepayment penalties and write off of deferred financing costs		-		1,179
Total Non-routine items		$ 70,716		$ 1,781
Weighted average dilutive shares outstanding		120,111,128		95,653,779
Incremental shares for Archstone Acquisition prefunding (4)		11,116,667		-

 

(1) Amount for 2013 relates to the Archstone Acquisition and consists primarily of debt assumption costs, title charges, legal, consulting and other fees.

 

(2) Includes both Archstone Acquisition related costs and yield maintenance costs for Fund I and Fund II dispositions.

 

(3) Represents the net interest cost incurred in 2013 through the closing of the Archstone Acquisition related to the unsecured debt issued in December 2012 in connection with the Archstone Acquisition less amounts earned on invested cash from the December 2012 unsecured debt and common share issuances.

 

(4) Represents the impact on the weighted average shares outstanding through the closing of the Archstone Acquisition from the Company’s issuance of common stock in December 2012 in anticipation of the Archstone Acquisition.

 

 

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 and full year 2013 to the range provided for projected EPS (diluted) are as follows:

 

 

 

 

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
		2013		2012		2012
Net income		$ 75,469		$ 57,609		$ 122,384
Indirect operating expenses, net of corporate income		9,041		8,036		7,862
Investments and investment management expense		1,015		1,446		1,545
Expensed acquisition, development and other pursuit costs		40,059		239		9,601
Interest expense, net		38,174		33,626		36,117
Loss on extinguishment of debt, net		--		1,179		--
General and administrative expense		10,039		9,710		7,703
Joint venture loss (income)		18,564		(2,175)		(11,113)
Depreciation expense		109,829		61,571		65,567
Casualty and impairment loss		--		--		1,449
Gain on sale of real estate assets		(84,491)		--		(51,262)
(Income) loss from discontinued operations		(2,446)		(3,935)		(2,885)
		$ 215,253		$ 167,306		$ 186,968
NOI from continuing operations
New England		$ 28,577		$ 28,087		$ 29,637
Metro NY/NJ		42,439		40,233		42,150
Mid-Atlantic		18,188		17,902		18,218
Pacific NW		7,850		7,106		7,782
No. California		27,504		24,637		26,716
So. California		18,463		17,435		18,192
Total Established		143,021		135,400		142,695
Other Stabilized (excluding Archstone)		31,823		20,053		30,260
Other Stabilized - Archstone		24,420		--		--
Development/Redevelopment		15,989		11,853		14,013
NOI from continuing operations		$ 215,253		$ 167,306		$ 186,968

 

 

 

NOI as reported by the Company does not include the operating results from discontinued operations (i.e., assets sold during the period January 1, 2012 through March 31, 2013 or classified as held for sale at March 31, 2013).  A reconciliation of NOI from communities sold or classified as discontinued operations to Net Income for these communities is as follows (dollars in thousands):

 

 

		Q1		Q1
		2013		2012
Income from discontinued operations		$ 2,446		$ 3,935
Interest expense, net		--		80
Depreciation expense		--		1,741
NOI from discontinued operations		$ 2,446		$ 5,756
NOI from assets sold		2,446		5,756
NOI from discontinued operations		$ 2,446		$ 5,756

 

 

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):

 

 

		Q1		Q1
		2013		2012
Rental revenue (GAAP basis)		$ 205,744		$ 196,101
Concessions amortized		52		385
Concessions granted		(37)		(163)
Rental revenue (with
concessions on a cash basis)		$ 205,759		$ 196,323
% change -- GAAP revenue				4.9%
% change -- cash revenue				4.8%

 

 

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, 2013 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.  The calculation of Interest Coverage for 2013 is impacted by the reduction in net income caused by the Archstone Acquisition costs.

 

A reconciliation of EBITDA and a calculation of Interest Coverage for the first quarter of 2013 are as follows (dollars in thousands):

 

 

Net income attributable to common stockholders		$ 75,427
Interest expense, net		38,174
Depreciation expense		109,829
EBITDA		$ 223,430
EBITDA from continuing operations		$ 136,493
EBITDA from discontinued operations		86,937
EBITDA		$ 223,430
EBITDA from continuing operations		$ 136,493
Interest expense, net		$ 38,174
Interest coverage		3.6

 

 

 

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 $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, amortization and extraordinary items.  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.

 

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, 2013 is shown in the table below (dollars in thousands). The calculation of Unencumbered NOI for the three months ended March 31, 2013 includes the impact for one month and one day of NOI (encumbered and unencumbered) for communities acquired in the Archstone Acquisition.

 

 

 

NOI for Established Communities		$ 143,021
NOI for Other Stabilized Communities (excluding Archstone)		31,823
NOI for Other Stabilized - Archstone		24,420
NOI for Development/Redevelopment Communities		15,989
NOI for discontinued operations		2,446
Total NOI generated by real estate assets		217,699
NOI on encumbered assets		65,127
NOI on unencumbered assets		152,572
Unencumbered NOI		70%

 

 

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 2013, Established Communities are consolidated communities that have stabilized operations as of January 1, 2012 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. Established Communities do not include communities acquired as part of the Archstone Acquisition.

 

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.