(Arlington, VA)  AvalonBay Communities, Inc. (NYSE: AVB) (the “Company”) reported today Net Income Attributable to Common Stockholders for the quarter ended December 31, 2013 of $252,212,000. This resulted in Earnings per Share – diluted (“EPS”) of $1.95 for the quarter ended December 31, 2013, compared to EPS of $1.19 for the comparable period of 2012, an increase of 63.9%. For the year ended December 31, 2013, EPS was $2.78 compared to $4.32 for the comparable period of 2012, a decrease of 35.6%.

 

The increase in EPS for the quarter ended December 31, 2013 over the prior year period is due primarily to an increase in real estate sales and related gains as well as an increase in Net Operating Income (“NOI”) from newly developed and acquired communities, partially offset by increased depreciation and interest expense.

 

The decrease in EPS for the year ended December 31, 2013 from the prior year is due primarily to non-recurring charges, including amounts related to the Archstone acquisition, as described in the Company’s first quarter 2013 earnings release dated April 30, 2013.  For the year ended December 31, 2013, EPS and FFO per share, include a charge of $0.63 per share for expensed transaction and joint venture costs from the Archstone acquisition. In addition, EPS for the year ended December 31, 2013, includes $1.45 per share for the depreciation of in-place leases acquired as part of the Archstone acquisition, which were being recognized over a six month period following the transaction. These amounts were partially offset by an increase in NOI from operating communities, as well as increases in real estate sales and related gains.

 

Funds from Operations attributable to common stockholders - diluted (“FFO”) per share for the quarter ended December 31, 2013 increased 18.9% to $1.51 from $1.27 for the comparable period of 2012.  FFO per share for the year ended December 31, 2013 decreased 5.1% to $5.05 from $5.32 for the prior year. Adjusting for non-routine items in this release, FFO per share would have increased over the prior year periods by 17.4% to $1.62 and 14.7% to $6.23 for the three months and year ended December 31, 2013, respectively.

 

The following table compares the Company’s actual results for the quarter and year ended December 31, 2013 to the outlook provided in its third quarter 2013 earnings release in October 2013.

 

		Per Share
		Q4 13		2013
Projected FFO per share - October 2013 outlook (1)		$  1.57		$  5.12
Debt prepayment charges		(0.11	)	(0.12	)
Favorable Archstone acquisition costs		0.04		0.04
Overhead and other		0.01		0.01
FFO per share reported results		$  1.51		$  5.05
(1) Represents the mid-point of the Company’s October 2013 outlook.

 

The following table compares the Company’s actual FFO per share, as adjusted for non-routine items, for the year ended December 31, 2013 to the FFO per share, as adjusted for non-routine items, reforecast provided in its third quarter 2013 earnings call on October 24, 2013.

 

		Per Share 2013
FFO per share, as adjusted for non-routine items - October		$      6.25
2013 reforecast
Community revenue		0.01
Community expenses		(0.01)
Interest, joint venture activities and other		(0.02)
FFO per share, as adjusted for non-routine items		$      6.23

 

Commenting on the Company’s results, Tim Naughton, Chairman and CEO, said, “Strong growth in quarterly and full year adjusted FFO was driven by our existing portfolio as well as leasing and stabilization of newly developed communities.  Projected FFO growth in 2014 supports the 8.4% dividend increase announced this evening, driven by healthy portfolio NOI growth, completion of over $1 billion of development and full year benefit of our investment in Archstone.”

Operating Results for the Quarter Ended December 31, 2013 Compared to the Prior Year Period

 

For the Company, including discontinued operations, total revenue increased by $124,231,000, or 45.0%, to $400,002,000.  This increase is primarily attributed to the Archstone acquisition in the first quarter of 2013, new developments, as well as growth in Established Community revenue noted below.  For Established Communities, average rental rates increased by 3.8%, and were partially offset by a decrease in Economic Occupancy of 0.3%, resulting in an increase in rental revenue of 3.5%. Total revenue for Established Communities increased $7,167,000 to $210,882,000. Operating expenses for Established Communities increased $3,095,000, or 5.0%, to $65,108,000. Accordingly, NOI for Established Communities increased by 2.9%, or $4,072,000, to $145,774,000.

 

The following table reflects the percentage changes in rental revenue, operating expenses and NOI for Established Communities for the fourth quarter of 2013 compared to the fourth quarter of 2012:

 

 

Q4 2013 Compared to Q4 2012
		Rental Revenue
		Avg Rent		Ec						% of
		Rates		Occ		Opex		NOI		NOI (1)
New England		3.7%		(0.8%)		5.2%		1.7%		20.1%
Metro NY/NJ		3.5%		(0.2%)		2.6%		3.7%		30.0%
Mid-Atlantic		0.2%		(0.2%)		7.8%		(2.9%)		12.1%
Pacific NW		5.5%		(0.5%)		17.6%		(0.5%)		5.3%
No. California		7.0%		0.2%		6.1%		7.6%		18.4%
So. California		3.5%		(0.5%)		1.7%		3.6%		14.1%
Total		3.8%		(0.3%)		5.0%		2.9%		100.0%

 

(1)         Total represents each region’s % of total NOI from the Company, including discontinued operations.

 

 

 

 

Operating Results for the Year Ended December 31, 2013 Compared to the Prior Year Period

 

For the Company, including discontinued operations, total revenue increased by $441,762,000, or 41.5%, to $1,505,795,000.  This increase is primarily attributed to the Archstone acquisition in the first quarter of 2013, new developments, as well as growth in Established Community revenue noted below.  For Established Communities, average rental rates increased by 4.2%, coupled with an increase in Economic Occupancy of 0.1%, resulting in an increase in rental revenue of 4.3%. Total revenue for Established Communities increased $34,802,000 to $834,391,000. Operating expenses for Established Communities increased $8,656,000, or 3.5%, to $255,452,000. Accordingly, NOI for Established Communities increased by 4.7%, or $26,146,000, to $578,939,000.

 

The following table reflects the percentage changes in rental revenue, operating expenses and NOI for Established Communities for the year ended December 31, 2013 as compared to the year ended December 31, 2012:

 

Full Year 2013 Compared to Full Year 2012
		Rental Revenue
		Avg Rent		Ec						% of
		Rates		Occ		Opex		NOI		NOI (1)
New England		3.1%		0.1%		5.7%		1.8%		19.9%
Metro NY/NJ		4.3%		0.0%		4.3%		4.4%		29.9%
Mid-Atlantic		0.9%		(0.1%)		2.6%		0.1%		12.4%
Pacific NW		7.5%		(0.3%)		11.2%		5.3%		5.4%
No. California		7.8%		0.3%		(1.6%)		11.7%		18.4%
So. California		3.7%		0.2%		1.3%		5.1%		14.0%
Total		4.2%		0.1%		3.5%		4.7%		100.0%

 

(1)         Total represents each region’s % of total NOI from the Company, including discontinued operations.

 

 

 

Development Activity

 

During the three months ended December 31, 2013, the Company engaged in the following development activity.

 

The Company completed the development of four communities: Avalon Somerset, located in Somerset, NJ; Avalon Natick, located in Natick, MA; Avalon East Norwalk, located in Norwalk, CT; and Eaves West Valley II, located in San Jose, CA. These four communities contain an aggregate of 1,115 apartment homes and were constructed for an aggregate Total Capital Cost of $222,300,000.

 

The Company started the construction of four communities:  Avalon Baker Ranch, located in Lake Forest, CA; Avalon Vista, located in Vista, CA; Avalon Bloomfield Station, located in Bloomfield, NJ; and Avalon Glendora, located in Glendora, CA.  These communities will contain 1,131 apartment homes when completed and will be developed for an estimated Total Capital Cost of $319,700,000.

 

The Company also acquired land parcels related to the development of five apartment communities during the quarter ended December 31, 2013 for an aggregate purchase price of $77,875,000. The Company has started or anticipates starting construction of new apartment communities on these land parcels during the next 12 months.

 

The Company added five development rights. If developed as expected, these development rights will contain 1,153 apartment homes and will be developed for an estimated Total Capital Cost of $311,000,000.

 

During 2013 the Company:

 

·                  completed the development of 12 communities containing an aggregate of 2,871 apartment homes, for a Total Capital Cost of $630,000,000;

 

·                  commenced the development of 13 communities which are expected to contain 3,792 apartment homes and be completed for a Total Capital Cost of $1,323,000,000, one of which is being constructed on behalf of a joint venture in which the Company has an interest; and

·                added or acquired 26 development rights, which if developed as expected will contain 7,711 apartment homes and be completed for a Total Capital Cost of $2,263,000,000.

 

Redevelopment Activity

 

During the three months ended December 31, 2013, the Company completed the redevelopment of one Avalon and one Eaves community, which contain an aggregate of 586 apartment homes and were redeveloped for an aggregate Total Capital Cost of $21,100,000, excluding costs incurred prior to the redevelopment.

 

During 2013 the Company:

 

·               completed the redevelopment of six communities containing an aggregate of 1,997 apartment homes, for a Total Capital Cost of $52,700,000, excluding costs incurred prior to redevelopment; and

 

·                commenced the redevelopment of four communities containing an aggregate of 887 apartment homes, for a projected Total Capital Cost of $44,000,000, excluding costs incurred prior to redevelopment.

 

Acquisition Activity

 

During the three months ended December 31, 2013, the Company acquired Arboretum at Burlington, located in Burlington, MA. Arboretum at Burlington contains 312 apartment homes and was acquired for a purchase price of $79,850,000.

 

Disposition Activity

 

During the three months ended December 31, 2013, the Company engaged in the following disposition activity.

 

The Company sold four wholly-owned communities, including two communities acquired as part of the Archstone acquisition. The communities sold are Avalon on the Sound East, located in New Rochelle, NY; Avalon Rosewalk, located in San Jose, CA; Archstone Vanoni Ranch, located in Ventura, CA; and Archstone Wheaton Station, located in Wheaton, MD. The communities were sold for an aggregate sales price of $495,000,000, and a weighted average Initial Year Market Cap Rate of 4.8%, resulting in a gain in accordance with GAAP of $160,058,000. The two AvalonBay communities yielded an unleveraged IRR of 12.6% over a 14.6 year weighted average holding period.

 

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 four communities containing 895 apartment homes for an aggregate sales price of $174,350,000. The Company’s share of the total gain in accordance with GAAP was $2,941,000.

 

During 2013 the Company sold eight wholly-owned communities, including four communities acquired as part of the Archstone acquisition.  The communities, containing 3,299 apartment homes, were sold for an aggregate sales price of $932,800,000, and a weighted average Initial Year Market Cap Rate of 4.9%, resulting in a gain in accordance with GAAP of $278,231,000. The four Avalonbay communities yielded an unleveraged IRR of 12.8% over a 13.4 year weighted average holding period.

Liquidity and Capital Markets

 

At December 31, 2013, the Company did not have any borrowings outstanding under its $1,300,000,000 unsecured credit facility, and had $380,022,000 in unrestricted cash and cash in escrow.

 

New Financing Activity

 

In mid-December 2013, the Company issued $350,000,000 principal amount of unsecured notes in a public offering under its existing shelf registration statement. The notes mature in December 2023 and were issued at a 4.20% interest rate. The notes have an effective interest rate of 4.30% including the effect of offering costs.

 

In late December 2013, the Company used a portion of the proceeds from the December 2013 unsecured notes offering to repay three fixed rate secured mortgage notes in the amount of $302,039,000, having a weighted average contractual interest rate of 5.47%, in advance of their respective maturity dates in 2015.  As part of the early retirement of these secured notes, the Company incurred a charge for prepayment penalties and the write-off of associated deferred financing costs of $14,921,000.

 

First Quarter 2014 Dividend Declaration

 

The Company’s Board of Directors declared a dividend for the first quarter of 2014 of $1.16 per share on the Company’s common stock (par value of $0.01 per share). The declared dividend is an 8.4% increase over the Company’s prior quarterly dividend of $1.07 per share. The dividend is payable on April 15, 2014 to common stockholders of record as of March 31, 2014.

 

In declaring the increased dividend, the Board of Directors evaluated the Company’s past performance and future prospects for earnings growth. Additional factors considered in determining the increase included current common dividend distributions, the relationship of the current common dividend distribution to the Company’s FFO, the relationship of dividend distributions to taxable income, distribution requirements under rules governing real estate investment trusts, and expected growth in taxable income.

 

Lehman Common Stock Holding Update

 

At the closing of the Archstone acquisition on February 27, 2013, AvalonBay and Equity Residential (“EQR”) delivered to an affiliate of Lehman Brothers Holdings, Inc. (“Lehman”) shares of common stock of AvalonBay valued at $1.88 billion and shares of common stock of EQR valued at $1.93 billion, respectively. Lehman has reported publicly in a bankruptcy court filing that, “[a]s of January 24, 2014, the combined aggregate market value of [Lehman’s] remaining holdings in EQR and AVB were approximately $582 million.”

 

2014 Financial Outlook

 

The following presents the Company’s financial outlook for 2014, the details of which are summarized in this release.

 

In setting operating expectations for 2014, management considered third party macroeconomic forecasts that project continued economic growth.

Projected EPS is expected to be within a range of $4.31 to $4.61 for the full year 2014.  The Company expects 2014 Projected FFO per share to be in the range of $6.60 to $6.90.

 

For the first quarter of 2014, the Company expects projected earnings per share, diluted within a range of $0.97 to $1.01. The Company expects Projected FFO per share in the first quarter of 2014 within a range of $1.60 to $1.64.

 

The Company’s 2014 financial outlook is based on a number of assumptions and estimates, some of which are provided in this release. The primary macroeconomic assumptions considered by the Company include the job growth and personal income growth that the Company expects for 2014, both for the U.S. as a whole and for the Company’s markets.  In the Company’s markets for 2014, the Company expects job growth and total personal income growth of 1.6% and 5.4%, respectively.

 

The following provides additional information on the Company’s primary estimates and assumptions for 2014:

 

Property Operations

 

The Company anticipates updating the composition of its Established Communities portfolio as of both January 1, 2014 and April 1, 2014. The expected April 1, 2014 update is primarily to incorporate the stabilized assets acquired in February 2013 as part of the Archstone acquisition.

 

The following are the Company’s expectations for full year 2014 growth in its Established Community portfolio that will be effective January 1, 2014.

 

·                The Company expects an increase in Established Communities’ rental revenue of 3.0% to 4.25%.

 

·                The Company expects an increase in Established Communities’ operating expenses of 2.0% to 3.0%.

 

·                The Company expects an increase in Established Communities’ NOI of 3.0% to 5.0%.

 

The Company expects the portfolio of Established Communities Effective April 1, 2014, which is expected to include communities acquired in the Archstone acquisition, to exhibit similar period over period growth, for the period from April 1, 2014 to December 31, 2014, to the ranges provided above.

 

Development and Redevelopment

 

·                The Company anticipates starting new developments in 2014 representing

approximately $1,400,000,000 of Total Capital Cost.

 

·                The Company expects to complete the development of 16 communities with a Total Capital Cost of approximately $1,100,000,000 in 2014.

 

·                The Company expects to disburse approximately $1,400,000,000 in 2014 related to its development activity, including the cost of acquiring land for future development.

 

·                The Company expects to complete and deliver approximately 5,100 apartment homes in 2014, and expects to occupy 4,700 apartment homes during the year.

 

·                The Company expects to start the redevelopment of 13 communities with an expected Total Capital Cost of approximately $126,700,000, and to invest approximately $100,000,000 in its redevelopment communities in 2014. Amounts exclude costs incurred prior to redevelopment.

 

Capital Markets & Transaction Activity

 

The Company’s investment activity during 2014 could require up to $1,500,000,000 of external funding.  The Company expects to meet this funding need through a combination of one or more of the following sources: asset sales, new unsecured debt and common or preferred stock issuances.  The Company’s funding plan is not dependent on any single source of capital and the ultimate funding sources used will depend on real estate, interest rate and capital market conditions at the time that capital is sourced.

 

First Quarter Conference Schedule

 

Management is scheduled to present at Citi’s Global Property CEO Conference from March 2 - 5, 2014.  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 on the Company’s website at http://www.avalonbay.com/events.

 

Other Matters

 

The Company will hold a conference call January 30, 2014 at 1:00 PM ET to review and answer questions about this release, its fourth quarter and full year 2013 results, its projections for 2014, the Attachments (described below) and related matters. To participate on the call, dial 888-437-9318 domestically and 719-325-2157 internationally and use conference id: 3009309.

To hear a replay of the call, which will be available from January 30, 2014 at 6:00 PM ET to February 6, 2014 at 6:00 PM ET, dial 888-203-1112 domestically and 719-457-0820 internationally, and use conference id: 3009309.

 

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, and financial outlook assumptions. 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.

 

Quarterly Earnings Call Format Update

 

The Company has modified its quarterly earnings call materials and conference call format.  In addition to the Attachments, the Company will provide a management letter and presentation that will be available on the Company’s website at http://www.avalonbay.com/earnings prior to the conference call scheduled for 1:00 PM ET on Thursday, January 30, 2014.  The management letter will include information and commentary that has been historically provided by management on the Company’s conference call.  Management will discuss the presentation on the conference call. To receive future press releases via e-mail, please submit a request through http://www.avalonbay.com/email.

 

About AvalonBay Communities, Inc.

 

As of December 31, 2013, the Company owned or held a direct or indirect ownership interest in 273 apartment communities containing 81,522 apartment homes in twelve states and the District of Columbia, of which 29 communities were under construction and three 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 Jason Reilley, Director 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; 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, 2012 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 2014 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.

		Low		High
		Range		Range
Projected EPS (diluted) - Q1 2014		$0.97		$1.01
Projected depreciation (real estate related)		0.81		0.85
Projected gain on sale of operating communities		(0.18)		(0.22)
Projected FFO per share (diluted) - Q1 2014		$1.60		$1.64
Projected EPS (diluted) - Full Year 2014		$4.31		$4.61
Projected depreciation (real estate related)		3.31		3.61
Projected gain on sale of operating communities		(1.02)		(1.32)
Projected FFO per share (diluted) - Full Year 2014		$6.60		$6.90

		Q4		Q4		Full Year		Full Year
		2013		2012		2013		2012
Rental revenue (GAAP basis)		$ 210,788		$ 203,632		$ 834,014		$ 799,265
Concessions amortized		164		89		333		825
Concessions granted		(350)		(55)		(737)		(305)
Rental revenue (with concessions on a cash basis)		$ 210,602		$ 203,666		$ 833,610		$ 799,785
% change -- GAAP revenue				3.5%				4.3%
% change -- cash revenue				3.4%				4.2%