(Source: Business Wire)
AvalonBay Communities, Inc. (NYSE: AVB) reported today that Net Income Attributable to Common Stockholders ("Net Income") for the quarter ended June 30, 2009 was $17,674,000. This resulted in Earnings per Share -- diluted ("EPS") of $0.22 for the quarter ended June 30, 2009, compared to EPS of $1.61 for the comparable period of 2008, a decrease of 86.3%. For the six months ended June 30, 2009, EPS was $0.82 compared to $2.21 for the comparable period of 2008, a per share decrease of 62.9%. The decreases are attributable to gains from asset sales in 2008 not present in 2009, coupled with an impairment recognized in the second quarter of 2009 for land parcels which the Company no longer intends to develop.
Funds from Operations attributable to common stockholders - diluted ("FFO") for the quarter ended June 30, 2009 decreased 28.6% to $0.90 per share from $1.26 per share for the comparable period of 2008. FFO per share for the six months ended June 30, 2009 decreased by 13.6% to $2.16 from $2.50 for the comparable period of 2008.
FFO and Net Income for the three months ended June 30, 2009 include the following non-routine items:
A non-cash charge of $0.28 per share related to the impairment and abandonment of certain Development Rights the Company no longer plans to pursue;
A charge of $0.03 per share for severance associated with staff reductions due to a further reduction in the Company's planned development activity as well as general economic conditions; partially offset by
Proceeds of $0.03 per share from legal settlements.
Adjusting for these non-routine items, FFO per share would have decreased by 6.3% for the second quarter of 2009 as compared to the prior year period.
In addition to the items discussed above, FFO and Net Income for the six months ended June 30, 2009 also include the following non-routine items:
incremental earnings of $0.05 per share due primarily to the recognition of the Company's promoted interest in a joint venture; and
a gain of $0.01 per share from purchasing medium-term notes at a discount prior to the scheduled maturity.
Adjusting for these additional non-routine items and the non-routine items in the second quarter, FFO per share for the six months ended June 30, 2009 would have decreased by 4.8% from the prior year period.
In addition, the period-over-period per share results are adversely impacted by the 2,627,000 additional shares issued in January 2009 as part of the special dividend declared in the fourth quarter of 2008.
Commenting on the Company's results, Bryce Blair, Chairman and CEO, said, "We expect the weak economy and continued job losses will pressure apartment fundamentals through 2009 and into 2010. We are taking the necessary actions to ensure our balance sheet and organization are well positioned to weather near-term challenges and to pursue future opportunities."
Operating Results for the Quarter Ended June 30, 2009 Compared to the Prior Year Period
For the Company, including discontinued operations, total revenue increased by $328,000, or 0.1% to $222,144,000. For Established Communities, rental revenue decreased 2.8% due to a decrease in Economic Occupancy of 0.9% and a decrease in Average Rental Rates of 1.9%. As a result, total revenue for Established Communities decreased $4,447,000 to $156,588,000. Operating expenses for Established Communities increased $1,681,000, or 3.4% to $51,477,000. Accordingly, Net Operating Income ("NOI") for Established Communities decreased by $6,128,000, or 5.5% to $105,111,000.
The following table reflects the percentage changes in rental revenue, operating expenses and NOI for Established Communities from the second quarter of 2008 to the second quarter of 2009:
2Q 09 Compared to 2Q 08 Rental Operating % of Revenue Expenses NOI NOI (1) New England (3.2%) 6.7% (8.3%) 19.9% Metro NY/NJ (3.2%) (2.3%) (3.5%) 28.2% Mid-Atlantic/Midwest (1.0%) 4.1% (3.8%) 16.6% Pacific NW (2.8%) 7.6% (6.8%) 4.7% No. California (2.7%) 4.4% (5.1%) 20.0% So. California (4.5%) 6.4% (8.6%) 10.6% Total (2.8%) 3.4% (5.5%) 100.0% -------------------------------------------------------------------------------
(1) Total represents each region's % of total NOI from the Company, including discontinued operations.
Cash concessions are recognized in accordance with generally accepted accounting principles ("GAAP") and are amortized over the approximate lease term, which is generally one year. The following table reflects the percentage changes in rental revenue with concessions on a GAAP basis and Rental Revenue with Concessions on a Cash Basis for our Established Communities:
2Q 09 vs 2Q 08 Rental Revenue Change with (2.8%) Concessions on a GAAP Basis Rental Revenue Change with Concessions on a Cash Basis (2.5%) -------------------------------------------------------------------------------
Operating Results for the Six Months Ended June 30, 2009 Compared to the Prior Year Period
For the Company, including discontinued operations, total revenue increased by $3,820,000, or 0.9% to $441,823,000. For Established Communities, rental revenue decreased 1.7%, comprised of a decrease in Average Rental Rates of 0.7% and a decrease in Economic Occupancy of 1.0%. As a result, total revenue for Established Communities decreased $5,501,000 to $314,667,000, and operating expenses for Established Communities increased $2,879,000 or 2.9% to $103,523,000. Accordingly, NOI for Established Communities decreased by $8,380,000, or 3.8% to $211,144,000.
The following table reflects the percentage changes in rental revenue, operating expenses and NOI for Established Communities for the six months ended June 30, 2009 as compared to the six months ended June 30, 2008:
YTD 2009 Compared to YTD 2008 Rental Operating % of Revenue Expenses NOI NOI (1) New England (2.7 %) 2.7 % (5.6 %) 19.7 % Metro NY/NJ (2.4 %) 1.1 % (3.8 %) 27.2 % Mid-Atlantic/Midwest (0.1 %) 3.7 % (2.2 %) 16.7 % Pacific NW (1.1 %) 4.2 % (3.3 %) 4.8 % No. California (0.5 %) 3.0 % (1.7 %) 20.7 % So. California (3.6 %) 5.6 % (7.1 %) 10.9 % Total (1.7 %) 2.9 % (3.8 %) 100.0 % -------------------------------------------------------------------------------
(1) Total represents each region's % of total NOI from the Company, including discontinued operations.
Development Activity
The Company has not started any new development activity during 2009. For the six months ended June 30, 2009, the Company completed the development of two communities: Avalon Morningside Park, located in New York, NY and Avalon at the Hingham Shipyard, located in Hingham, MA. These communities contain an aggregate 530 apartment homes and were completed for an aggregate Total Capital Cost of $172,500,000.
Redevelopment Activity
During the second quarter of 2009, the Company completed the redevelopment of Essex Place, located in Peabody, MA and Avalon Mountain View, located in Mountain View, CA. These two communities contain an aggregate of 534 apartment homes and redevelopment was completed for a Total Capital Cost of $18,600,000, excluding costs incurred prior to redevelopment.
During the second quarter of 2009, the Company commenced the redevelopment of two communities: Avalon Pleasanton, located in Pleasanton, CA and Avalon Watch, located in West Windsor, NJ. These two communities contain an aggregate of 968 apartment homes and will be redeveloped for an estimated Total Capital Cost of $38,300,000, excluding costs incurred prior to redevelopment.
Investment Management Fund Activity
The Company currently has investments in and serves as the manager for two private, discretionary investment management vehicles.
AvalonBay Value Added Fund, L.P. (the "Fund") is a private, discretionary investment vehicle in which the Company holds an equity interest of approximately 15%.
AvalonBay Value Added Fund II, L.P. ("Fund II") is a private, discretionary investment vehicle with commitments from five institutional investors and the Company.
In April 2009, the Company announced the second and final closing of Fund II. In this closing, total equity commitments to Fund II increased by $67,000,000 as a result of the following:
a new institutional investor made an equity commitment of $75,000,000;
an existing institutional investor increased its commitment by $17,000,000, based on terms of its existing commitment; and
the Company decreased its commitment by $25,000,000, based on terms of its existing commitment, decreasing the Company's equity interest to approximately 31%.
With the final closing, Fund II equity commitments total $400,000,000 (including the Company's $125,000,000 commitment). Fund II can employ leverage of up to 65%, allowing for an investment capacity of approximately $1,100,000,000.
In May 2009, Fund II purchased Verona Apartments, located in Bellevue, WA. Verona Apartments contains 220 homes and was acquired for a purchase price of $33,100,000, or approximately $150,000 per apartment home.
Financing, Liquidity and Balance Sheet Statistics
At June 30, 2009, the Company had no amounts outstanding under its $1,000,000,000 unsecured credit facility and the Company had $456,064,000 in unrestricted cash and cash in escrow. The cash in escrow is available for development activity and includes $93,440,000 in bond proceeds related to an existing Development Right that the Company expects to develop in the future. Unencumbered NOI as a percentage of total NOI generated by real estate assets for the six months ended June 30, 2009 was 65%. Interest Coverage for the second quarter of 2009 was 2.9 times.
New Financing Activity
In April 2009, the Company completed a 5.86% fixed rate, pooled secured loan for $741,140,000. The financing consists of fourteen separate mortgage loans each with a 10-year term. Each loan provides for payment of interest only during the first and second years of the loan term, with payment of principal and interest (based on a 30 year amortization schedule) thereafter and the remaining principal amount and any unpaid interest due at maturity on the tenth anniversary.
Debt Repayment Activity
In May 2009, the Company repaid $19,470,000 in variable rate debt secured by Avalon at Flanders Hill, located in Westborough, MA.
Also in May 2009, the Company repaid $105,600,000 in unsecured debt, representing the first tranche of its $330,000,000 unsecured variable rate term loan, pursuant to its scheduled maturity.
Third Quarter and Full Year 2009 Financial Outlook
The Company uses a composite of third party economic forecasts to develop operating and financial plans, with a particular focus on employment forecasts. Changes in employment conditions have a significant impact on overall demand for rental housing and are highly correlated to changes in revenue growth.
During the first six months of 2009, actual job losses materially exceeded those contained in the economic forecasts used by the Company to prepare its initial 2009 financial outlook. Actual job losses nationwide through June 2009 totaled 3.2 million, a 70% increase over assumptions incorporated into the Company's February 2009 outlook. A composite of third party economic forecasts now projects a year-over-year decline in nationwide employment of 5.4 million jobs for 2009 with unemployment peaking between 10.5% to 11.0% by mid-2010.
Based on these revised employment projections, revenue from Established Communities is anticipated to decline by 3.5% to 4.5% for 2009. This compares to the 1.5% to 3.5% decline incorporated into the original financial outlook in February 2009. The Company now expects a decline in Established Communities NOI within a range of 6.0% to 8.0%. Changes in these key operating metrics translate into a revised EPS and FFO per share range as follows:
Earnings per Share: $2.70 to $2.85
Projected FFO per share: $4.15 to $4.30
Projected FFO per share growth (at the midpoint of the updated outlook range): 3.7%
Projected FFO per share decline, as adjusted for non-routine items in 2008 and 2009: 10.6%
In addition, The Company has expanded its disposition plan for the remainder of 2009 and now expects full year gross sales proceeds from planned asset dispositions to range from $200,000,000 to $300,000,000.
An analysis of the revised 2009 financial outlook compared to the initial 2009 financial outlook provided in February follows:
2009 Financial Outlook As of July 2009 Changes From February 2009 Per Share FFO (February 2009 Outlook) $ 4.65 NOI & other income (0.16 ) Partial cessation of capitalized interest ((1)) (0.04 ) G&A reductions, net 0.05 Impairments & abandoned pursuits (0.28 ) FFO (July 2009 Outlook) 4.22 -------------------------------------------------------------------------------
(1) For Development Rights abandoned or not actively under development.
The Company's 2008 FFO per share of $4.07 included non-recurring items discussed in its fourth quarter and full year 2008 operating results released in February 2009. The 2009 Projected FFO includes the non-recurring items discussed on page one of this release, as well as an estimated charge for additional federal excise taxes for undistributed earnings of approximately $3,200,000. Adjusting for these non-routine items in both years, the Company expects 2009 Projected FFO per share to decline by 10.6% at the mid-point of the range. FFO per share is also adversely impacted by the additional shares from the dividend declared during the fourth quarter of 2008.
For the third quarter of 2009, the Company expects Projected EPS within a range of $0.48 to $0.52. The Company expects Projected FFO per share for the third quarter of 2009 within a range of $1.07 to $1.11.
Third Quarter 2009 Conference/Event Schedule
The Company expects to release its third quarter 2009 earnings on October 28, 2009 after the market closes. The Company expects to hold a conference call on October 29, 2009 at 1:00 PM EDT to discuss the third quarter 2009 results.
