01—Abstract
Summary
Summary of the 10-K filed February 26, 2016. Cited figures are marked; the original filing is the authoritative source.
AvalonBay Communities (AVB) closed 2015 with a strong year of operating and earnings growth, driven by its core coastal apartment portfolio in New England, the NY/NJ metro, the Mid-Atlantic, the Pacific Northwest, and Northern and Southern California.
Net income attributable to common stockholders rose 8.6% to $742.0 milliona ($5.51 diluted EPS), helped by NOI growth from newly developed communities, Established Community NOI growth of 5.8%, and one-time gains from Edgewater fire insurance recoveries, debt extinguishment, and joint venture promotes. Core FFO per diluted share increased to $7.55 from $6.78, and FFO per diluted share reached $8.05. Rental revenue at Established Communities grew 5.0%, with average rental rates up 5.3% and economic occupancy slightly lower at 95.6%.
The company remains in an active development cycle. It completed 13 communities (4,170 homes, $1.31 billionb) in 2015, started 13 more, and held 26 communities under construction with an expected total cost of roughly $2.88 billion. Its development rights pipeline covers 32 future communities and about 9,634 homes.
Balance sheet activity included $873 millionc of new unsecured notes, a $1.5 billion revolving credit facility extended to 2020 in January 2016, and the repayment of about $851 million of secured debt. Total debt was about $6.48 billion at year-end, and the company stated it was in compliance with its financial covenants.
Key risks flagged in the filing include the Edgewater, NJ fire lawsuits (four putative class actions and 18 suits representing about 145 plaintiffs), exposure to earthquakes and severe weather in concentrated West Coast and Northeast markets, rising interest rate sensitivity on variable-rate debt, and supply pressure from elevated new apartment deliveries in New York City and Northern California. The board also raised the first-quarter 2016 dividend 8.0% to $1.35d per share.
02—Key points
Key Highlights
- Net income attributable to common stockholders grew 8.6% to $742.0 million, or $5.51 per diluted share, compared with $683.6 million in 2014.
- Core FFO per diluted share rose to $7.55 from $6.78 in 2014, while FFO per diluted share reached $8.05.
- Established Community NOI increased 5.8% on rental revenue growth of 5.0%, driven by average rental rate increases of 5.3%.
- Development pipeline: 26 communities under construction (8,112 homes, roughly $2.88 billion projected cost) and 32 development rights representing about 9,634 homes.
- Edgewater fire: final insurance settlement of $73.0 million after deductibles, with $44.0 million received in 2015 and $29.0 million expected in Q1 2016, though lawsuits remain pending.
- Liquidity: $400.5 million of cash at year-end, a $1.5 billion revolving credit facility (upsized and extended to April 2020 in January 2016), and $875 million of new unsecured notes issued in 2015 plus a $300 million Term Loan.
- Dividend: Q1 2016 dividend increased 8.0% to $1.35 per share from $1.25, and 2015 cash dividends declared totaled $5.00 per share.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 26, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $1.86B$1.69B | +10.1% |
| Operating Expenses | $1.31B$1.25B | +4.6% |
| Operating Income | $1.22B$1.10B | +10.6% |
| Interest Expense | $175.62M$180.62M | −2.8% |
| Net Income | $742.04M$683.57M | +8.6% |
| EPS (Basic) | $5.54$5.22 | +6.1% |
| EPS (Diluted) | $5.51$5.21 | +5.8% |
| Shares Outstanding (Basic) | 133.57M130.59M | +2.3% |
| Shares Outstanding (Diluted) | 134.59M131.24M | +2.6% |
05—Questions
Frequently Asked Questions
How did AvalonBay's core earnings performance compare to 2014?
Core FFO per diluted share increased about 11% to $7.55 in 2015 from $6.78 in 2014, while FFO per diluted share rose to $8.05 from $7.25. The growth was mainly driven by NOI from newly developed communities and stronger rental rate growth in Established Communities.
What is the main risk from the Edgewater fire?
A January 2015 fire destroyed one building (240 homes) at Avalon at Edgewater, NJ, and led to four putative class actions and 18 state lawsuits representing about 145 plaintiffs. Management believes remaining third-party liability is substantially covered by insurance after deductibles, but it says it cannot give assurance of that outcome and continues to evaluate the matter.
How exposed is AvalonBay to rising interest rates?
At December 31, 2015, the company had $1.35 billion of variable-rate debt; a 100 basis point rise would have increased annual interest costs by about $14.5 million. It has hedged part of its expected 2016–2017 debt issuance with $600 million of forward swaps, plus $450 million more added in early 2016.
Is the company's development pipeline growing, and what are the associated risks?
The company completed $1.31 billion of development in 2015, started 13 new communities with an expected cost of $1.19 billion, and held 26 communities under construction plus 32 development rights. Risks include construction cost overruns, delays in lease-up, and difficulty obtaining financing or entitlements, which could lead to abandonment and write-offs of pre-development costs.
06—Continue