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 months ended December 31, 2022 and 2021 as detailed below.
Q4
2022
Q4
2021
%
Change
EPS
$
1.72
$
2.40
(28.3
)%
FFO per share (1)
$
2.57
$
2.27
13.2
%
Core FFO per share (1)
$
2.59
$
2.27
14.1
%
(1) For additional detail on reconciling items between net income attributable to common stockholders, FFO and Core FFO, see Definitions and Reconciliations, table 2.
The following table compares the Company’s actual results for EPS, FFO per share and Core FFO per share for the three months ended December 31, 2022 to its results for the prior year period:
Q4 2022 Results Compared to Q4 2021
Per Share
EPS
FFO
Core FFO
Q4 2021 per share reported results
$
2.40
$
2.27
$
2.27
Same Store Residential NOI (1)
0.29
0.29
0.29
Development and Other Stabilized Residential NOI
0.08
0.08
0.08
Commercial NOI
0.01
0.01
0.01
Overhead and other
(0.10
)
(0.10
)
(0.05
)
Capital markets and transaction activity
—
0.01
(0.03
)
Unconsolidated investment income
0.03
0.03
0.02
Income taxes
(0.02
)
(0.02
)
—
Gain on sale of real estate and depreciation expense
(0.97
)
—
—
Q4 2022 per share reported results
$
1.72
$
2.57
$
2.59
(1) Consists of increases of $0.38 in revenue and $0.09 in operating expenses.
The following table compares the Company’s actual results for EPS, FFO per share and Core FFO per share for the three months ended December 31, 2022 to its November 2022 outlook:
Q4 2022 Results Compared to November 2022 Outlook
Per Share
EPS
FFO
Core FFO
Projected per share (1)
$
1.75
$
2.57
$
2.60
Same Store Residential NOI (2)
(0.02
)
(0.02
)
(0.02
)
Development and Other Stabilized Residential NOI
—
—
—
Commercial NOI
—
—
—
Overhead and other
(0.06
)
(0.06
)
(0.02
)
Capital markets and transaction activity
0.04
0.04
0.01
Unconsolidated investment income and other
0.07
0.07
0.02
Income taxes
(0.03
)
(0.03
)
—
Gain on sale of real estate and depreciation expense
(0.03
)
—
—
Q4 2022 per share reported results
$
1.72
$
2.57
$
2.59
(1) The mid-point of the Company’s November 2022 outlook.
(2) Consists of $0.01 for revenue and $0.01 for operating expenses.
EPS, FFO per share and Core FFO per share for the years ended December 31, 2022 and 2021 are detailed below.
Full
Year
2022
Full
Year
2021
%
Change
EPS
$
8.12
$
7.19
12.9
%
FFO per share
$
9.67
$
8.13
18.9
%
Core FFO per share
$
9.79
$
8.26
18.5
%
The following table compares the Company’s actual results for EPS, FFO per share and Core FFO per share for the year ended December 31, 2022 to its results for the prior year:
Full Year 2022 Results Compared to Full Year 2021
Per Share
EPS
FFO
Core FFO
2021 per share reported results
$
7.19
$
8.13
$
8.26
Same Store Residential NOI (1)
1.29
1.29
1.29
Development and Other Stabilized Residential NOI
0.42
0.42
0.42
Commercial NOI
0.07
0.07
0.07
Overhead and other
(0.26
)
(0.26
)
(0.20
)
Capital markets and transaction activity
0.04
0.04
(0.10
)
Unconsolidated investment income
0.04
0.04
0.05
Income taxes
(0.06
)
(0.06
)
—
Gain on sale of real estate and depreciation expense
(0.61
)
—
—
2022 per share reported results
$
8.12
$
9.67
$
9.79
(1) Consists of increases of $1.57 in revenue and $0.28 in operating expenses.
Same Store Operating Results for the Three Months Ended December 31, 2022 Compared to the Prior Year Period
Same Store total revenue increased $53,664,000, or 10.2%, to $578,448,000. Same Store Residential rental revenue increased $53,447,000, or 10.3%, to $571,828,000, as detailed in the following table:
Same Store Residential Rental Revenue Change
Q4 2022 Compared to Q4 2021
Residential rental revenue
Lease rates
8.9
%
Concessions and other discounts
1.7
%
Economic occupancy
(0.3
)%
Other rental revenue
1.2
%
Uncollectible lease revenue (excluding rent relief) (1)
1.2
%
Rent relief (2)
(2.4
)%
Residential rental revenue
10.3
%
(1) Adjusting to remove the impact of rent relief, uncollectible lease revenue as a percentage of total Residential rental revenue decreased to 3.0% in Q4 2022 from 4.5% in Q4 2021. See Definitions and Reconciliations, table 10 for further detail of uncollectible lease revenue for the Company’s Same Store portfolio.
(2) The Company recognized $3,060,000 and $15,452,000 from government rent relief programs during Q4 2022 and Q4 2021, respectively.
Same Store Residential operating expenses increased $13,028,000, or 8.2%, to $171,600,000 and Same Store Residential NOI increased $40,573,000, or 11.3%, to $400,722,000.
The following table presents percentage changes in Same Store Residential rental revenue, operating expenses and NOI for the three months ended December 31, 2022 compared to the three months ended December 31, 2021:
Q4 2022 Compared to Q4 2021
Same Store Residential
Rental
Revenue
(1)
Opex
(2)
% of
Q4 2022
NOI
NOI
New England
13.3
%
8.5
%
15.9
%
15.0
%
Metro NY/NJ
13.4
%
7.7
%
15.8
%
21.5
%
Mid-Atlantic
8.4
%
4.4
%
10.2
%
14.8
%
Southeast FL
17.4
%
34.4
%
9.6
%
1.6
%
Denver, CO
13.2
%
10.6
%
14.2
%
1.3
%
Pacific NW
14.2
%
9.2
%
16.4
%
6.2
%
N. California
9.7
%
10.6
%
9.4
%
18.3
%
S. California
5.5
%
7.0
%
5.0
%
21.3
%
Total
10.3
%
8.2
%
11.3
%
100.0
%
(1) See full release for additional detail.
(2) See full release for discussion of variances.
Same Store Operating Results for the Year Ended December 31, 2022 Compared to the Prior Year
Same Store total revenue increased $222,830,000, or 11.0%, to $2,250,368,000. Same Store Residential rental revenue increased $218,692,000, or 10.9%, to $2,224,125,000, as detailed in the following table:
Same Store Residential Rental Revenue Change
Full Year 2022 Compared to Full Year 2021
Residential rental revenue
Lease rates
7.8
%
Concessions and other discounts
1.9
%
Economic occupancy
0.1
%
Other rental revenue
1.0
%
Uncollectible lease revenue (excluding rent relief) (1)
(0.1
)%
Rent relief (2)
0.2
%
Residential rental revenue
10.9
%
(1) Adjusting to remove the impact of rent relief, uncollectible lease revenue as a percentage of total Residential rental revenue decreased to 3.4% in 2022 from 3.7% in 2021.
(2) The Company recognized $36,778,000 and $31,823,000 from government rent relief programs during 2022 and 2021, respectively.
Same Store Residential operating expenses increased $39,015,000, or 6.0%, to $685,469,000 and Same Store Residential NOI increased $179,941,000, or 13.2%, to $1,540,390,000.
The following table presents percentage changes in Same Store Residential rental revenue, operating expenses and NOI for the year ended December 31, 2022 compared to the year ended December 31, 2021:
Full Year 2022 Compared to Full Year 2021
Same Store Residential
Rental
Revenue
(1)
Opex
(2)
% of
2022 NOI
NOI
New England
12.5
%
6.0
%
16.2
%
14.7
%
Metro NY/NJ
12.2
%
8.0
%
14.2
%
20.8
%
Mid-Atlantic
7.4
%
4.6
%
8.8
%
14.6
%
Southeast FL
20.7
%
10.4
%
27.0
%
1.6
%
Denver, CO
13.1
%
(1.3
)%
19.5
%
1.3
%
Pacific NW
15.3
%
4.8
%
20.3
%
6.4
%
N. California
8.3
%
5.8
%
9.4
%
18.5
%
S. California
11.2
%
5.9
%
13.6
%
22.1
%
Total
10.9
%
6.0
%
13.2
%
100.0
%
(1) See full release for additional detail.
(2) See full release for discussion of variances.
Development Activity
Consolidated Development Communities
During the three months ended December 31, 2022, the Company completed the development of Avalon Harbor Isle, located in Island Park, NY. Avalon Harbor Isle contains 172 apartment homes and was constructed for a Total Capital Cost of $94,000,000.
During the three months ended December 31, 2022, the Company started construction of Kanso Milford, located in Milford, MA. Kanso Milford is expected to contain 162 apartment homes when completed and be developed for an estimated Total Capital Cost of $66,000,000.
During 2022, the Company:
completed the development of five communities containing an aggregate of 1,858 apartment homes for an aggregate Total Capital Cost of $692,000,000; and
commenced the development of five communities, which in the aggregate are expected to contain 1,845 apartment homes when completed and be developed for an estimated Total Capital Cost of $729,000,000.
At December 31, 2022, the Company had 17 consolidated Development communities under construction that are expected to contain 5,417 apartment homes and 56,000 square feet of commercial space. Estimated Total Capital Cost at completion for these Development communities is $2,259,000,000.
Disposition Activity
Consolidated Apartment Communities
During the three months ended December 31, 2022, the Company sold Avalon Park Crest, a wholly-owned community, located in Tysons Corner, VA. Avalon Park Crest contains 354 apartment homes and was sold for $145,500,000, resulting in a gain in accordance with GAAP of $88,156,000 and an Economic Gain of $65,764,000.
During the year ended December 31, 2022, the Company sold nine wholly-owned communities containing an aggregate of 2,062 apartment homes. These assets were sold for $924,450,000 and a weighted average initial Market Cap Rate of 4.0%, resulting in a gain in accordance with GAAP of $554,826,000 and an Economic Gain of $404,449,000.
During the three months and year ended December 31, 2022, the Company sold two and 40, respectively, of the 172 residential condominiums at The Park Loggia, located in New York, NY, for gross proceeds of $6,520,000 and $126,848,000, respectively. As of December 31, 2022, the Company has sold 163 of the 172 residential condominiums for aggregate gross proceeds of $478,679,000.
Unconsolidated Real Estate Investments
During the year ended December 31, 2022, Archstone Multifamily Partners AC LP (the “U.S. Fund”), a private discretionary real estate investment vehicle in which the Company holds an equity interest of 28.6%, sold its final three communities, Avalon Grosvenor Tower, Avalon Studio 4121 and Avalon Station 250. These communities contain an aggregate of 671 apartment homes and were sold for $313,500,000. With the disposition of these communities, the Company recognized $4,690,000 in joint venture income associated with its promoted interest in the U.S. Fund.
Acquisition Activity
During the three months ended December 31, 2022, the Company acquired Avalon Highland Creek, a wholly-owned community, located in Charlotte, NC, containing 260 apartment homes for a purchase price of $76,700,000.
During the year ended December 31, 2022, the Company acquired four wholly-owned communities containing 1,313 apartment homes and 16,000 square feet of commercial space for a total purchase price of $536,200,000.
Structured Investment Program Activity
During 2022, the Company entered into the first commitments under its Structured Investment Program, through which the Company will provide mezzanine loans or preferred equity to third party multifamily developers. The initial commitments are for three mezzanine loans of up to $92,375,000 in the aggregate. These commitments are to fund multifamily development projects in the Company’s existing markets. At December 31, 2022, the commitments had a weighted average rate of return of 9.8% and the Company had funded $29,352,000 of these commitments.
Liquidity and Capital Markets
As of December 31, 2022, 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. The Company had $2,248,086,000 available under the Credit Facility after considering its commercial paper program and letters of credit as of December 31, 2022.
In addition, at December 31, 2022, the Company had $613,189,000 in unrestricted cash and cash equivalents and $121,056,000 in cash in escrow, which is restricted primarily related to principal reserve funds for secured borrowing arrangements.
The Company’s annualized Net Debt-to-Core EBITDAre (as defined in this release) for the fourth quarter of 2022 was 4.5 times and Unencumbered NOI (as defined in this release) for the year ended December 31, 2022 was 95%.
During the three months ended December 31, 2022, the Company issued $350,000,000 principal amount of unsecured notes in a public offering under its existing shelf registration statement for net proceeds before offering costs of $346,290,000. The notes mature in February 2033 and were issued with a 5.00% coupon. The effective interest rate of the notes is 4.37%, including the impact of offering costs and hedging activity.
During the year ended December 31, 2022, in addition to the debt activity discussed above, the Company had the following debt activity:
The Company repaid its $100,000,000 principal amount variable rate unsecured term loan at its maturity. The variable rate unsecured term loan was indexed to LIBOR plus 0.90% and entered into in February 2017.
The Company repaid $35,276,000 principal amount secured fixed rate debt with an effective rate of 6.16% in advance of the October 2047 maturity date, recognizing a loss on debt extinguishment of $1,399,000 composed of prepayment penalties and the non-cash write off of unamortized deferred financing costs.
During the three months ended December 31, 2022, the Company settled the outstanding forward contracts entered into in December 2021 under its current continuous equity program, selling 68,577 shares of common stock for $229.34 per share, for net proceeds of $15,727,000.
During the second quarter of 2022, in connection with an underwritten offering of shares, the Company entered into forward contracts to sell 2,000,000 shares of common stock by the end of 2023 for an initial forward sales price of $247.30 per share and approximate proceeds of $494,200,000 net of offering fees and discounts and based on the initial forward price (the “Equity Forward”). The proceeds that the Company expects to receive on the date or dates of settlement are subject to certain customary adjustments during the term of the forward contract for the Company’s dividends and a daily interest charge.
First Quarter 2023 Dividend Declaration
The Company’s Board of Directors declared a dividend for the first quarter of 2023 of $1.65 per share on the Company’s common stock (par value of $0.01 per share). The declared dividend is a 3.8% increase over the Company’s prior quarterly dividend of $1.59 per share. The dividend is payable on April 17, 2023 to common stockholders of record as of March 31, 2023.
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 Core FFO, the relationship of dividend distributions to taxable income, distribution requirements under rules governing real estate investment trusts and expected growth in taxable income.
First Quarter and Full Year 2023 Financial Outlook
The following presents a summary of the Company’s financial outlook for 2023, further details for which are provided in the full release.
For its first quarter and full year 2023 financial outlook, the Company expects the following:
Projected EPS, Projected FFO and Projected Core FFO Outlook (1)
Q1 2023
Full Year 2023
Low
High
Low
High
Projected EPS
$
1.05
—
$
1.15
$
6.25
—
$
6.75
Projected FFO per share
$
2.46
—
$
2.56
$
9.99
—
$
10.49
Projected Core FFO per share
$
2.47
—
$
2.57
$
10.06
—
$
10.56
(1) See Definitions and Reconciliations, table 8, for reconciliations of Projected FFO per share and Projected Core FFO per share to Projected EPS.
The following table compares the Company’s actual results for EPS, FFO per share and Core FFO per share for the full year 2022 to its 2023 full year financial outlook:
Full Year 2023 Outlook Comparison
to Full Year 2022 Full Year Results
Per Share
EPS
FFO
Core FFO
2022 per share reported results
$
8.12
$
9.67
$
9.79
Same Store NOI (1)
0.51
0.51
0.51
Development and Other Stabilized Residential NOI
0.20
0.20
0.19
Commercial NOI
(0.01
)
(0.01
)
(0.01
)
Overhead and other
0.05
0.05
0.03
Capital markets and transaction activity
(0.08
)
(0.08
)
(0.10
)
Variable rate interest expense
(0.10
)
(0.10
)
(0.10
)
Gain on sale of real estate and depreciation expense
(2.19
)
—
—
Projected per share – 2023 outlook (2)
$
6.50
$
10.24
$
10.31
(1) Consists of increases of $0.85 in revenue and $0.34 in operating expenses.
(2) Represents the mid-point of the Company’s February 2023 outlook.
The following table compares the Company’s actual results for EPS, FFO per share and Core FFO per share for the fourth quarter 2022 to its first quarter 2023 financial outlook:
Q4 2022 Results Compared to Q1 2023 Outlook
Per Share
EPS
FFO
Core FFO
Q4 2022 per share reported results
$
1.72
$
2.57
$
2.59
Same Store NOI (1)
(0.03
)
(0.03
)
(0.03
)
Development and Other Stabilized Residential NOI
—
—
—
Commercial NOI
—
—
—
Overhead and other
(0.02
)
(0.02
)
(0.03
)
Capital markets and transaction activity
—
—
—
Variable rate interest expense
(0.01
)
(0.01
)
(0.01
)
Gain on sale of real estate and depreciation expense
(0.56
)
—
—
Projected per share – Q1 2023 outlook (2)
$
1.10
$
2.51
$
2.52
(1) Consists of increases of $0.04 in revenue and $0.07 in operating expenses.
(2) Represents the mid-point of the Company’s February 2023 outlook.
First Quarter Conference Schedule
Management is scheduled to present at Citi’s Global Property CEO Conference from March 5 – 8, 2023. During this conference, 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://investors.avalonbay.com.
Other Matters
The Company will hold a conference call on February 9, 2023 at 1:00 PM ET to review and answer questions about this release, its fourth quarter 2022 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 February 9, 2023 at 4:00 PM ET to March 9, 2023, dial 844-512-2921 and use replay passcode: 13734358. A webcast of the conference call will also be available at http://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 http://investors.avalonbay.com. 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://investors.avalonbay.com subsequent to this release and before the market opens on February 9, 2023.
About AvalonBay Communities, Inc.
As of December 31, 2022, the Company owned or held a direct or indirect ownership interest in 294 apartment communities containing 88,475 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 markets 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 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,” “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 new 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 Structured Investment Program 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; the timing and net proceeds of condominium sales at The Park Loggia may not equal our current expectations; litigation costs and consequences may exceed our expectations; and risks related to pandemics, including the effect, among other factors, on the multifamily industry and the general economy of measures taken by businesses and the government, such as governmental limitations on the ability of multifamily owners to evict residents who are delinquent in the payment of their rent, the preferences of consumers and businesses for living and working arrangements, and federal efforts at economic stimulus.
Contacts
For additional information, please contact Jason Reilley, Vice President of Investor Relations, at 703-317-4681.