01—Abstract
Summary
Summary of the 10-K filed February 25, 2021. Cited figures are marked; the original filing is the authoritative source.
AvalonBay Communities (AVB) closed 2020 with a resilient earnings profile despite the COVID-19 shock to its apartment business.
Net income attributable to common stockholders rose 5.3% to $827.6 milliona, driven mainly by $340.4 million of gains on sales of communities (up from $166.1 million in 2019). Underlying operations weakened: Established Communities NOI fell 6.4% to roughly $1.41 billion, rental revenue on that pool dropped 3.7%, and uncollectible lease revenue jumped to 2.18% of residential revenue from 0.53%. Consolidated total revenue declined 1.0%, while Net Operating Income for the whole portfolio fell about 3% to $1.547 billion.
Core FFO per diluted share declined to $8.69b from $9.34, and FFO per diluted share fell to $8.45 from $9.18, so investors should weigh the gain-driven EPS against the weaker recurring cash earnings. Balance sheet and liquidity remain strong. AVB ended the year with $313.5 million in cash and restricted cash, a $1.75 billion undrawn revolving credit facility (only $2.9 million of letters of credit outstanding), and total debt of about $7.6 billion.
The company issued $1.3 billionc of unsecured notes at low fixed rates (2.30% and 2.45%) and used proceeds to repay higher-coupon notes early, incurring a $9.3 million extinguishment loss. It remained in compliance with all financial covenants, and dividends were maintained at $6.36 per share for 2020 with a $1.59 quarterly dividend declared for Q1 2021. The company repurchased 1.2 million shares for $183.9 million under a new $500 million program, with $316 million remaining.
Looking forward, management highlighted a sizable development pipeline (16 consolidated communities with 5,128 homes and about $1.95 billiond projected capitalized cost, plus 24 Development Rights for roughly 7,853 homes). Key risks include continued rent collection pressure, moratoria limiting evictions, rent control expansion in California and New York, and uncertainty around the pandemic's duration. Collected residential revenue was 92.9% for January 2021, which suggests collections are still below pre-pandemic norms.
02—Key points
Key Highlights
- Net income attributable to common stockholders rose 5.3% to $827.6 million ($5.89 diluted EPS), supported by $340.4 million in gains on community sales.
- Core FFO per diluted share declined to $8.69 from $9.34 (-7%), and FFO per diluted share fell to $8.45 from $9.18, reflecting weaker recurring operating performance.
- Established Communities NOI fell 6.4% (about $96 million) as rental revenue dropped 3.7%, with $43.97 million of uncollectible lease revenue attributed to the pandemic.
- Total NOI for the portfolio declined to $1.547 billion from $1.594 billion; total revenue fell 1.0% to $2.30 billion.
- Strong liquidity: $313.5 million in cash, a $1.75 billion undrawn credit facility, and a 2.30%/2.45% unsecured note issuance profile that lowered borrowing costs.
- Dividend maintained at $1.59 per quarter (declared for Q1 2021); $183.9 million of stock repurchases executed in 2020 with $316.1 million remaining authorization.
- Development pipeline of 16 consolidated communities (5,128 homes, about $1.95 billion projected cost) plus 24 Development Rights (7,853 homes), with near-term completions in 2021 across several markets.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 25, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $2.30B$2.32B | −1.0% |
| Operating Expenses | $1.83B$1.70B | +7.6% |
| Operating Income | $1.47B$1.55B | −5.1% |
| Interest Expense | $214.15M$203.59M | +5.2% |
| Net Income | $827.63M$785.97M | +5.3% |
| EPS (Basic) | $5.89$5.64 | +4.4% |
| EPS (Diluted) | $5.89$5.63 | +4.6% |
| Shares Outstanding (Basic) | 140.09M139.05M | +0.7% |
| Shares Outstanding (Diluted) | 140.44M139.57M | +0.6% |
05—Questions
Frequently Asked Questions
Why did net income rise in 2020 if operating performance weakened?
The increase was driven mainly by gains on sales of communities, which totaled $340.4 million in 2020 versus $166.1 million in 2019, and by a $10.6 million rise in gain-related items such as the condominium sales at The Park Loggia. These non-recurring gains offset a decline in NOI from Established Communities. Investors often look at Core FFO, which fell 7% to $8.69 per diluted share, to assess recurring earnings power.
How much COVID-19 impact did AvalonBay absorb in its rental revenue?
Uncollectible lease revenue rose by $53.3 million for the consolidated portfolio, of which $39.6 million was residential and $13.7 million commercial. Residential uncollectible revenue reached 2.18% of residential revenue versus 0.53% in 2019. Increased concessions further reduced rental revenue, and Established Communities rental revenue fell 3.7% overall.
Is AvalonBay's balance sheet and dividend at risk?
The balance sheet appears solid. The company had no borrowings under its $1.75 billion credit facility, stated compliance with all debt covenants, and raised new unsecured debt at low fixed rates. Dividends paid totaled $883 million in 2020. However, the dividend is set at the Board's discretion and depends on cash from operations, and the 10-K flags that a prolonged decline in rent collections could pressure cash flow and distributions.
What are the main risks investors should monitor going forward?
Key risks include the duration of the pandemic and related eviction moratoria that limit collections, rent control expansion in California (statewide cap of the lesser of 10% or 5% plus CPI) and New York, higher construction and financing costs for the development pipeline, the transition from LIBOR to SOFR affecting variable-rate debt, and potential impairment of land held for future development. The company also noted a $7.3 million write-off on a New York City Development Right.
06—Continue