01—Abstract
Summary
Summary of the 10-K filed February 24, 2023. Cited figures are marked; the original filing is the authoritative source.
AvalonBay Communities (AVB) closed 2022 with strong operating momentum: net income attributable to common stockholders rose 13.2% to $1.14 billiona ($8.12 diluted EPS), and Same Store Residential NOI grew 13.2% to $1.54 billion.
Same Store residential rental revenue increased 10.9%, driven by a 10.8% rise in average monthly rental revenue per occupied home to $2,774,b with economic occupancy essentially flat at 96.1%. Core FFO per diluted share reached $9.79, up from $8.26 in 2021, and the company declared a 3.8% increase in its Q1 2023 quarterly dividend to $1.65 per share. Portfolio activity was active in both directions.
AvalonBay sold nine wholly-owned communities for $924 millionc, generating $555.6 million in gains, and acquired four communities for $536 million. It completed five developments (1,858 homes, $692 million capitalized cost) and has 18 wholly-owned developments under construction representing about 5,589 homes. The company also launched a Structured Investment Program offering mezzanine loans at a 9.8% weighted average return, with $29.4 million funded at year-end.
Its development rights pipeline covers 39 communities and roughly 13,312 future apartment homes. The balance sheet remains conservative, with total assets of $20.5 billiond, $8.4 billion of debt at a 3.4% weighted average rate, and $2.25 billion of Credit Facility capacity. Key risks flagged include rent control expansion in California and New York, inflation pressure on operating and construction costs, interest rate exposure on $607 million of variable rate debt, and a newly disclosed set of 14 purported class actions tied to the RealPage revenue management litigation, which management believes lack merit but has not yet quantified.
02—Key points
Key Highlights
- Core FFO per diluted share rose to $9.79 in 2022 from $8.26 in 2021, while diluted EPS reached $8.12 versus $7.19, reflecting strong operating performance and asset sales.
- Same Store Residential NOI increased 13.2% to $1.54 billion, driven by a 10.9% rise in residential rental revenue, with average monthly rent per occupied home up 10.8% to $2,774.
- Asset recycling was significant: nine wholly-owned communities sold for $924 million (gains of $555.6 million), against four acquisitions for $536 million and five developments completed at $692 million total capitalized cost.
- The development pipeline includes 18 wholly-owned communities under development (about 5,589 homes), 39 Development Rights representing about 13,312 future homes, and a $729 million start on five new consolidated communities during 2022.
- The company launched the Structured Investment Program in April 2022 and committed $92.4 million across three mezzanine loans at a 9.8% weighted average return, with $29.4 million funded at year-end.
- Liquidity is strong, with $734 million of cash and escrow, $2.25 billion of undrawn Credit Facility capacity, and a 2.0 billion-plus equity forward sale of 2,000,000 shares expected by December 2023 at about $494 million in net proceeds.
- The RealPage litigation (14 purported class actions) and expanding rent control in California and New York are the principal new legal and regulatory risks disclosed, with management believing the claims lack merit as applied to AvalonBay.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2022filed February 24, 2023Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $2.59B$2.29B | +13.0% |
| Operating Expenses | $2.06B$1.93B | +6.7% |
| Operating Income | $1.70B$1.46B | +16.8% |
| Interest Expense | $230.07M$220.41M | +4.4% |
| Net Income | $1.14B$1.00B | +13.2% |
| EPS (Basic) | $8.13$7.19 | +13.1% |
| EPS (Diluted) | $8.12$7.19 | +12.9% |
| Shares Outstanding (Basic) | 139.63M139.39M | +0.2% |
| Shares Outstanding (Diluted) | 139.98M139.72M | +0.2% |
05—Questions
Frequently Asked Questions
How did AvalonBay's core operating performance trend in 2022?
Same Store Residential rental revenue rose 10.9% to $2.22 billion, driven mainly by a 7.8% increase in lease rates and smaller contributions from concessions and other revenue. Economic occupancy held near 96%, so growth came primarily from pricing. Same Store Residential NOI grew 13.2%, and total NOI increased to $1.77 billion from $1.48 billion in 2021.
What is the company's dividend outlook and payout profile?
AvalonBay declared a Q1 2023 quarterly dividend of $1.65 per share, a 3.8% increase over the prior $1.59. Total 2022 dividends declared were $6.36 per share, which is well below Core FFO of $9.79 per share, leaving meaningful retained cash flow. The dividend is set at the Board's discretion and must satisfy REIT distribution requirements of at least 90% of taxable income.
How exposed is AvalonBay to rising interest rates?
Variable rate debt totaled $607 million at December 31, 2022, and a 100 basis point increase would raise annual interest by about $6.9 million. The fixed rate debt of $8.4 billion has a weighted average rate of 3.4%, but a 100 basis point rise would reduce its fair value by about $464 million. Debt maturities are manageable, with $608 million due in 2023 and $459 million in 2024, and the company holds interest rate caps on about $403 million of debt.
What legal and regulatory risks should investors watch?
The most notable new item is the RealPage Litigation: 14 purported class actions filed in late 2022 and early 2023 alleging that landlords conspired to inflate rents through shared revenue management software. Management believes the claims lack merit and does not currently expect a material impact, but the outcome cannot be predicted at this early stage. Rent regulation is also expanding, including California's statewide cap of the lesser of 10% or 5% plus CPI and New York's rent stabilization rules, which could constrain rent growth.
06—Continue