10-KPeriod: FY2013

AVALONBAY COMMUNITIES INC Annual Report, Year Ended Dec 31, 2013

Filed March 3, 2014For Securities:AVB

Summary

AvalonBay Communities Inc. (AVB) reported its 2013 annual results, highlighting a strategic acquisition of Archstone, which significantly expanded its portfolio. Despite a decrease in net income attributable to common stockholders compared to 2012, driven by acquisition-related expenses and a loss on an interest rate contract, the company saw an increase in Net Operating Income (NOI) from its communities. The company's strategy focuses on developing, acquiring, and operating apartment communities in high barrier-to-entry markets, with a strong brand presence across different customer segments. AVB maintained a robust development pipeline with 29 communities under construction, adding approximately 8,708 apartment homes. The company also completed the development of 12 communities and started 13 new ones during the year. Liquidity remains strong, supported by operating cash flows, a revolving credit facility, and various capital raising activities including unsecured notes and asset sales. The company reaffirms its commitment to its REIT status and continues to evaluate its portfolio for optimal value creation through acquisitions, development, and dispositions.

Financial Highlights

34 data points
Beta

Revenue

$1.46B

Net Income

$353.14M

24.1% Net Margin

EPS (Diluted)

$2.78

Total Assets

$15.33B

Cash & Equivalents

$281.36M

Free Cash Flow

$724.32M

Financial Statements
Beta
Revenue$1.46B
Operating Expenses$1.39B
Operating Income$966.06M
Interest Expense$172.40M
Net Income$353.14M
EPS (Basic)$2.78
EPS (Diluted)$2.78
Shares Outstanding (Basic)126.86M
Shares Outstanding (Diluted)127.27M

Key Highlights

  • 1Acquisition of Archstone significantly expanded AVB's portfolio, adding 54 consolidated operating apartment communities with 18,423 homes.
  • 2Net income attributable to common stockholders decreased by 16.7% to $353.1 million in 2013, primarily due to acquisition-related expenses and an interest rate contract loss.
  • 3Net Operating Income (NOI) increased by 47.1% to $997.4 million in 2013, driven by the Archstone acquisition and growth in Established Communities.
  • 4AVB completed 12 development communities and started 13 new ones in 2013, reflecting a strong development pipeline.
  • 5The company's total debt increased significantly, partly due to $2 billion in net indebtedness assumed from Archstone, but it maintained compliance with financial covenants.
  • 6Liquidity was supported by $281.5 million in unrestricted cash and cash equivalents at year-end 2013, and a $1.3 billion revolving credit facility.
  • 7The company declared a quarterly dividend of $1.16 per share for Q1 2014, an 8.4% increase, signaling confidence in future cash flows.

Frequently Asked Questions

The Archstone acquisition significantly increased AvalonBay's portfolio size, contributing to a substantial rise in rental income and Net Operating Income (NOI). However, it also led to increased expenses, including depreciation and acquisition-related costs, and a loss on an interest rate contract, which resulted in a decrease in net income attributable to common stockholders compared to the prior year.

AvalonBay's debt increased substantially due to the Archstone acquisition, primarily through assumed secured indebtedness. The company manages its debt through various financing activities like issuing unsecured notes and utilizing its credit facility. Key risks include the potential for increased costs of funds if credit ratings decline, the availability of debt financing on favorable terms, and the possibility of debt issuances being dilutive to stockholders. The company was in compliance with its financial covenants as of December 31, 2013.

AvalonBay's strategy involves developing, acquiring, owning, and operating apartment communities in high barrier-to-entry markets. The company focuses on market research and capital allocation to deliver tailored multifamily offerings. In 2013, it actively pursued development, completing 12 communities and starting 13 new ones, with 29 communities under construction at year-end, representing approximately 8,708 new apartment homes. The company also maintains Development Rights for an additional 12,986 apartment homes.

AvalonBay operates as a Real Estate Investment Trust (REIT) and intends to maintain this qualification by adhering to complex Internal Revenue Code provisions, including distributing at least 90% of its taxable income. Risks include potential failure to qualify due to various operational and tax compliance issues, which would result in significant corporate income taxes and reduced funds for distributions. The company believes it is organized and qualified as a REIT and operates to remain so.