AvalonBay Communities, Inc. Announces Second Quarter 2020 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 June 30, 2020 was $170,828,000. Earnings per Share – diluted (“EPS”) for the three months ended June 30, 2020 remained unchanged from the prior year period at $1.21.
Funds from Operations attributable to common stockholders – diluted (“FFO”) per share for the three months ended June 30, 2020 decreased 1.3% to $2.21 from $2.24 for the prior year period. Core FFO per share (as defined in this release) for the three months ended June 30, 2020 decreased 1.8% to $2.23 from $2.27 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, 2020 to its results for the prior year period:
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Q2 2020 Results Compared to Q2 2019 |
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Per Share (1) |
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EPS |
FFO |
Core FFO |
||||||
|
Q2 2019 per share reported results |
$ |
1.21 |
|
$ |
2.24 |
|
$ |
2.27 |
|
|
Established Community NOI (2) |
(0.10 |
) |
(0.10 |
) |
(0.10 |
) |
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Development and Other Stabilized Community NOI |
0.08 |
|
0.08 |
|
0.08 |
|
|||
|
Capital markets and transaction activity |
(0.03 |
) |
(0.03 |
) |
(0.03 |
) |
|||
|
Joint venture income |
(0.02 |
) |
(0.02 |
) |
(0.02 |
) |
|||
|
Overhead and other |
0.03 |
|
0.03 |
|
0.03 |
|
|||
|
Income tax benefit |
0.01 |
|
0.01 |
|
— |
|
|||
|
Gain on sale of real estate and depreciation expense |
0.03 |
|
— |
|
— |
|
|||
|
Q2 2020 per share reported results |
$ |
1.21 |
|
$ |
2.21 |
|
$ |
2.23 |
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(1) For additional detail on reconciling items between EPS, FFO and Core FFO, see Definitions and Reconciliations, table 3. |
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(2) Established Community uncollectible residential and retail lease revenue increased $0.10 over the prior year period. |
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For the six months ended June 30, 2020, EPS decreased 0.8% to $2.41 from $2.43 for the prior year period, FFO per share decreased 1.3% to $4.49 from $4.55 for the prior year period, and Core FFO per share increased 0.9% to $4.61 from $4.57 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 six months ended June 30, 2020 to its results for the prior year period:
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YTD 2020 Results |
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Comparison to YTD 2019 |
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Per Share (1) |
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EPS |
FFO |
Core FFO |
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|
|
|
|
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|
YTD 2019 per share reported results |
$ |
2.43 |
|
$ |
4.55 |
|
$ |
4.57 |
|
|
Established Community NOI (2) |
(0.02 |
) |
(0.02 |
) |
(0.02 |
) |
|||
|
Development and Other Stabilized Community NOI |
0.18 |
|
0.18 |
|
0.18 |
|
|||
|
Capital markets and transaction activity |
(0.13 |
) |
(0.16 |
) |
(0.10 |
) |
|||
|
Joint venture income |
(0.02 |
) |
(0.02 |
) |
(0.02 |
) |
|||
|
Overhead and other |
(0.05 |
) |
(0.05 |
) |
— |
|
|||
|
Income tax benefit |
0.01 |
|
0.01 |
|
— |
|
|||
|
Gain on sale of real estate and depreciation expense |
0.01 |
|
— |
|
— |
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YTD 2020 per share reported results |
$ |
2.41 |
|
$ |
4.49 |
|
$ |
4.61 |
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(1) For additional detail on reconciling items between EPS, FFO and Core FFO, see Definitions and Reconciliations, table 3. |
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(2) Established Community uncollectible residential and retail lease revenue increased $0.11 over the prior year period. |
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Established Communities Operating Results for the Three Months Ended June 30, 2020 Compared to the Prior Year Period
For Established Communities, total revenue decreased $15,973,000, or 3.0%, to $523,531,000. Residential and retail uncollectible lease revenue contributed $14,214,000 of this decrease, comprised of $10,722,000 for residential and $3,492,000 for retail. Operating expenses for Established Communities decreased $1,748,000, or 1.1%, to $155,340,000. NOI for Established Communities decreased $14,225,000, or 3.7%, to $368,191,000.
Rental revenue for Established Communities decreased 2.9%, as detailed in the following table:
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Established Communities Change in Rental Revenue |
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Q2 2020 Compared to Q2 2019 |
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|
Residential rental revenue |
|
|
|
Lease rates |
1.8 |
% |
|
Concessions and other discounts |
(0.2 |
)% |
|
Economic occupancy |
(1.2 |
)% |
|
Other rental revenue |
(0.6 |
)% |
|
Uncollectible lease revenue |
(2.0 |
)% |
|
Total residential rental revenue |
(2.2 |
)% |
|
Retail rental revenue (1) |
(0.7 |
)% |
|
Total Established Communities change in rental revenue |
(2.9 |
)% |
|
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|
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|
(1) Consists primarily of the impact of uncollectible retail lease revenue. |
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The following table reflects the percentage changes in rental revenue, operating expenses and NOI for Established Communities for the three months ended June 30, 2020 compared to the three months ended June 30, 2019:
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Q2 2020 Compared to Q2 2019 |
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|
|
Rental |
|
Opex |
|
NOI |
|
% of |
||||
|
New England |
|
0.2 |
% |
|
(0.7 |
)% |
|
0.7 |
% |
|
14.7 |
% |
|
Metro NY/NJ |
|
(5.2 |
)% |
|
(0.4 |
)% |
|
(7.5 |
)% |
|
21.6 |
% |
|
Mid-Atlantic |
|
(2.2 |
)% |
|
(2.0 |
)% |
|
(2.5 |
)% |
|
15.4 |
% |
|
Pacific NW |
|
(1.9 |
)% |
|
5.7 |
% |
|
(4.8 |
)% |
|
6.3 |
% |
|
No. California |
|
(1.2 |
)% |
|
(3.8 |
)% |
|
(0.3 |
)% |
|
20.6 |
% |
|
So. California |
|
(5.1 |
)% |
|
(0.5 |
)% |
|
(7.0 |
)% |
|
19.5 |
% |
|
Expansion Mkts |
|
(1.0 |
)% |
|
(8.6 |
)% |
|
4.6 |
% |
|
1.9 |
% |
|
Total |
|
(2.9 |
)% |
|
(1.1 |
)% |
|
(3.7 |
)% |
|
100.0 |
% |
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(1) See full release for additional detail. |
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(2) See full release for discussion of variances. |
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(3) Represents % of total NOI for Q2 2020, including amounts related to communities that have been sold or that are classified as held for sale. |
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Established Communities Operating Results for the Six Months Ended June 30, 2020 Compared to the Prior Year Period
For Established Communities, total revenue increased $153,000 to $1,071,487,000. This increase was net of an increase of $15,227,000 for residential and retail uncollectible lease revenue, comprised of $11,667,000 for residential and $3,560,000 for retail. Operating expenses for Established Communities increased $3,070,000, or 1.0%, to $311,651,000. NOI for Established Communities decreased $2,917,000, or 0.4%, to $759,836,000.
Rental revenue for Established Communities increased 0.1%, as detailed in the following table:
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Established Communities Change in Rental Revenue |
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YTD 2020 Compared to YTD 2019 |
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|
Residential rental revenue |
|
|
|
Lease rates |
2.2 |
% |
|
Concessions and other discounts |
— |
% |
|
Economic occupancy |
(0.4 |
)% |
|
Other rental revenue |
(0.3 |
)% |
|
Uncollectible lease revenue |
(1.1 |
)% |
|
Total residential rental revenue |
0.4 |
% |
|
Retail rental revenue (1) |
(0.3 |
)% |
|
Total Established Communities change in rental revenue |
0.1 |
% |
|
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|
|
|
(1) Consists primarily of the impact of uncollectible retail lease revenue. |
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The following table reflects the percentage changes in rental revenue, operating expenses and NOI for Established Communities for the six months ended June 30, 2020 compared to the six months ended June 30, 2019:
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YTD 2020 Compared to YTD 2019 |
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|
|
|
Rental |
|
Opex |
|
NOI |
|
% of |
||||
|
New England |
|
2.0 |
% |
|
2.2 |
% |
|
1.9 |
% |
|
14.2 |
% |
|
Metro NY/NJ |
|
(1.6 |
)% |
|
1.0 |
% |
|
(2.9 |
)% |
|
21.9 |
% |
|
Mid-Atlantic |
|
0.7 |
% |
|
(1.1 |
)% |
|
1.4 |
% |
|
15.6 |
% |
|
Pacific NW |
|
0.7 |
% |
|
4.9 |
% |
|
(0.9 |
)% |
|
6.3 |
% |
|
No. California |
|
0.9 |
% |
|
0.9 |
% |
|
0.9 |
% |
|
20.3 |
% |
|
So. California |
|
(1.0 |
)% |
|
1.0 |
% |
|
(1.9 |
)% |
|
19.9 |
% |
|
Expansion Mkts |
|
0.1 |
% |
|
(1.3 |
)% |
|
1.0 |
% |
|
1.8 |
% |
|
Total |
|
0.1 |
% |
|
1.0 |
% |
|
(0.4 |
)% |
|
100.0 |
% |
|
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|
|
|
|
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(1) See full release for additional detail. |
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(2) See full release for discussion of variances. |
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(3) Represents each region’s % of total NOI for YTD 2020, including amounts related to communities that have been sold or that are classified as held for sale. |
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COVID-19 Operational Update
Established Communities Collections Update
The following table provides an update for residential revenue collections for Established Communities for the three months ended June 30, 2020. Collected residential revenue represents the portion of apartment base rent charged to residents and other rentable items, including parking and storage rent, along with pet and other fees in accordance with residential leases, that has been collected (“Collected Residential Revenue”), and excludes transactional and other fees.
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Established Communities Collections – Q2 2020 (1) |
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Collected Residential Revenue |
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|
At month end (2) |
|
At July 28, 2020 (3) |
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|
April |
93.9 |
% |
|
97.7 |
% |
|
May |
92.8 |
% |
|
96.4 |
% |
|
June |
93.6 |
% |
|
95.5 |
% |
|
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|
|
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|
(1) Excludes retail revenue, which was 1.4% of the Company’s 2019 Established Communities’ total revenue. The Company collected 56.5% of billed retail revenue for Q2 2020. |
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(2) The percentage of Collected Residential Revenue as of the last calendar day for each month. AVB collected an average of 95.4% of the month end AVB Residential Benchmark of 97.9% during Q2 2020. |
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(3) The percentage of Collected Residential Revenue as of July 28, 2020 for each month. Collected Residential Revenue for July 2020 as of July 28, 2020 was 93.3%, which is 95.5% of the AVB Residential Benchmark. |
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For further discussion of collection rates and limitations on use of this data, see Definitions and Reconciliations.
The ongoing impact from COVID-19 on the Company’s consolidated results of operations, including dispositions of real estate, will be affected by the duration and severity of the pandemic, and how quickly and to what extent normal economic and operating conditions resume. Because those factors are beyond the Company’s control and knowledge, the adverse future impact of the pandemic on the Company’s results of operations cannot be reasonably estimated, and could be material. In addition, the Company’s historical results, including results for the three and six months ended June 30, 2020 and information through July 29, 2020, may not be indicative of results for future periods. Due to the uncertainty from the ongoing impact of COVID-19, the Company had previously withdrawn and is not providing full year 2020 guidance.
Development Activity
The Company did not start or complete any Development Communities during the three months ended June 30, 2020. The Company will evaluate future starts on an individual basis, based on evolving economic and market conditions.
At June 30, 2020, the Company had 19 Development Communities under construction that in the aggregate are expected to contain 6,198 apartment homes and 64,000 square feet of retail space. Estimated Total Capital Cost at completion for these Development Communities is $2,344,000,000 at share. As of June 30, 2020, the Company has an estimated remaining Total Capital Cost of $757,000,000 to invest over the next several years, including the 19 Development Communities under construction and recently completed Development Communities.
The projected Total Capital Cost of Development Rights at June 30, 2020 increased to $4.2 billion from $4.1 billion at March 31, 2020.
Disposition Activity
During the three months ended June 30, 2020, the Company sold Avalon Tinton Falls, a wholly-owned operating community, located in Tinton Falls, NJ. Avalon Tinton Falls contains 216 apartment homes and was sold for $64,900,000, resulting in a gain in accordance with GAAP of $35,297,000 and an Economic Gain of $21,727,000.
During the six months ended June 30, 2020, the Company sold two wholly-owned operating communities containing an aggregate of 466 apartment homes. These assets were sold for $129,650,000 and a weighted average Initial Market Cap Rate of 5.0%, resulting in a gain in accordance with GAAP of $59,710,000 and an Economic Gain of $36,655,000.
During the three and six months ended June 30, 2020, the Company sold 16 and 52 of the 172 residential condominiums at The Park Loggia, located in New York, NY, for gross proceeds of $61,207,000 and $166,814,000, respectively. At June 30, 2020, 64% of the 67,000 square feet of retail space has been leased. In addition, subsequent to quarter end and through the date of this release, the Company sold two residential condominiums for gross proceeds of $4,708,000.
Liquidity and Capital Markets
At June 30, 2020, the Company did not have any borrowings outstanding under its $1,750,000,000 unsecured credit facility, and had $415,694,000 in unrestricted cash and cash in escrow.
The Company’s annualized Net Debt-to-Core EBITDAre (as defined in this release) for the second quarter of 2020 was 4.9 times and Unencumbered NOI (as defined in this release) was 94%.
During the three months ended June 30, 2020, the Company had the following debt activity:
- The Company issued $600,000,000 principal amount of unsecured notes in a public offering under its existing shelf registration statement for net proceeds of $593,430,000. The notes mature in January 2031 and were issued with a 2.45% coupon. The effective interest rate of the notes is 2.65%, including the impact of an interest rate hedge and offering costs.
- The Company repaid $300,000,000 principal amount of its variable rate unsecured notes in advance of the January 2021 scheduled maturity.
During the six months ended June 30, 2020, in addition to the debt activity discussed above, the Company had the following debt activity:
- The Company issued $700,000,000 principal amount of unsecured notes in a public offering under its existing shelf registration statement for net proceeds of $694,701,000. The notes mature in March 2030 and were issued with a 2.30% coupon. The effective interest rate of the notes is 2.68%, including the impact of an interest rate hedge and offering costs.
- The Company repaid (i) $400,000,000 principal amount of its 3.625% unsecured notes in advance of the October 2020 scheduled maturity and (ii) $250,000,000 principal amount of its 3.95% unsecured notes in advance of the January 2021 scheduled maturity. In conjunction with these repayments, the Company recognized a loss on debt extinguishment of $9,170,000 composed of prepayment penalties and the non-cash write-off of unamortized deferred financing costs.
- The Company obtained a $51,000,000 mortgage note with a maturity date of March 2027 with a contractual interest rate of 2.38%, in conjunction with the refinancing of $50,616,000 of secured indebtedness that had a contractual interest rate of 3.08%.
Stock Repurchase Program
The Company also announced today that its Board of Directors approved a new stock repurchase program under which the Company may acquire shares of its common stock in open market or negotiated transactions up to an aggregate purchase price of $500,000,000. This authority may be exercised from time to time in the Company’s discretion and in such amounts as market conditions warrant. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, market conditions and other corporate liquidity requirements and priorities. The stock repurchase program does not have an expiration date and may be suspended or terminated at any time without prior notice. The Company intends that funds used for the stock repurchase program will be matched over time with the proceeds from sales of existing apartment communities and in some cases with newly issued debt, but initially may be funded from existing cash balances, retained cash flow and/or the Company’s line of credit. There have been no stock repurchases under this program through the date of this release.
Other Matters
The Company will hold a conference call on July 30, 2020 at 1:00 PM ET to review and answer questions about this release, its second quarter 2020 results, the Attachments (described below) and related matters. To participate on the call, dial 800-347-6311 and use conference id: 8622716.
To hear a replay of the call, which will be available from July 30, 2020 at 6:00 PM ET to August 6, 2020 at 6:00 PM ET, dial 888-203-1112 and use conference id: 8622716. 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://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 http://www.avalonbay.com/earnings subsequent to this release and before the market opens on July 30, 2020.
About AvalonBay Communities, Inc.
As of June 30, 2020, the Company owned or held a direct or indirect ownership interest in 295 apartment communities containing 86,380 apartment homes in 11 states and the District of Columbia, of which 19 communities were under development. 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 markets consisting of Southeast Florida and Denver, Colorado (the “Expansion Markets”). 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 those related to the COVID-19 pandemic, about which there are many uncertainties, including (i) the duration and severity of the pandemic and (ii) the effect on the multifamily industry and the general economy of measures taken by businesses and the government to prevent the spread of the novel coronavirus and relieve economic distress of consumers, such as governmental limitations on the ability of multifamily owners to evict residents who are delinquent in the payment of their rent. Due to this uncertainty we are not able at this time to estimate the effect of these factors on our business, but the adverse impact of the pandemic on our business, results of operations, cash flows and financial condition could be material. In addition, the effects of the pandemic are likely to heighten the following risks, which we routinely face in our business: 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; and the timing and net proceeds of condominium sales may not equal our current expectations. Additional discussions of risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the forward-looking statements (and which risks may also be heightened because of the COVID-19 pandemic) 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, 2019 under the heading “Risk Factors” and under the heading “Management’s Discussion and Analysis of Financial 2019 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. 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.
AVB Residential Benchmark represents the average monthly revenue collections as a percentage of amounts billed for the referenced day of the month for the period from April 2019 to March 2020.
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.
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.
Economic Occupancy (“Ec Occ”) is defined as total possible revenue less vacancy loss as a percentage of total possible revenue. Total possible revenue (also known as “gross potential”) 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.
Economic Gain is calculated by the Company as the gain 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.
Contacts
Jason Reilley
Vice President of Investor Relations
703-317-4681