01—Abstract
Summary
Summary of the 10-K filed February 23, 2024. Cited figures are marked; the original filing is the authoritative source.
AvalonBay Communities (AVB) closed 2023 with a portfolio of 299 communities (90,669 apartment homes) and 18 under development, and continued to lean on its development-led growth model.
Net income attributable to common stockholders fell 18.3% to $928.8 milliona ($6.56 diluted EPS) as gains on real estate sales dropped to $287.4 million from $555.6 million a year earlier. The earnings decline is largely a comparison effect from the prior year's larger disposition gains; the operating story was stronger. Same Store NOI rose 6.2% to $1.73 billion, driven by Same Store residential revenue growth of 6.3% (average monthly rental revenue per occupied home up 6.6% to $2,926), partially offset by a 6.6% increase in residential operating expenses.
Core FFO per diluted share rose to $10.63b from $9.79, and the Board raised the Q1 2024 quarterly dividend 3.0% to $1.70 per share. Balance sheet and liquidity remain solid. Total debt principal was $8.04 billion at a 3.5% weighted average rate, with the $2.25 billion Credit Facility undrawn apart from $20 million of commercial paper.
Management issued $400 millionc of 5.30% unsecured notes due 2033, repaid $600 million of fixed-rate notes and the $150 million term loan, and settled a $492 million equity forward at $245.96 per share. Operating cash flow increased to $1.56 billion from $1.42 billion.
Investors should weigh several risks: a pending District of Columbia antitrust lawsuit tied to RealPage revenue-management software, which the company says it cannot yet quantify; growing rent-control pressure in California and New York; and a $33.5 milliond charge for abandoned development pursuits, including $27.5 million of write-offs on seven Development Rights. The company also carries a development pipeline of about $2.5 billion in projected capitalized cost across 17 communities, which adds execution and interest-rate risk.
02—Key points
Key Highlights
- Net income attributable to common stockholders was $928.8 million, or $6.56 per diluted share, down 18.3% from $1.14 billion in 2022, mainly because of lower gains on sales of communities ($287.4 million vs. $555.6 million).
- Same Store NOI grew 6.2% to $1.73 billion, supported by a 6.3% increase in Same Store residential rental revenue and a 6.6% rise in average monthly rent per occupied home to $2,926, offset by a 6.6% increase in residential operating expenses.
- Core FFO per diluted share increased to $10.63 from $9.79 (about 8.6%), and FFO per diluted share rose to $10.32 from $9.67.
- The Board raised the quarterly dividend 3.0% to $1.70 per share for Q1 2024, from $1.65, after dividends of $6.60 per share were declared for 2023.
- Liquidity is strong: the $2.25 billion Credit Facility was essentially undrawn (about $2.23 billion available at January 31, 2024), and the company was in compliance with its financial covenants at year-end.
- Development activity remains significant, with 17 Development Communities under construction (6,064 apartment homes, about $2.49 billion projected capitalized cost) plus 30 Development Rights for roughly 10,801 future apartment homes.
- Material legal and regulatory exposure: AVB was named in a District of Columbia antitrust lawsuit over RealPage revenue-management software, the outcome of which it cannot currently predict or estimate, and rent-control laws in California and New York continue to tighten.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2023filed February 23, 2024Financial Statements
FY2023 against FY2022
| Line item | FY2023FY2022 | Change |
|---|---|---|
| Revenue | $2.77B$2.59B | +6.7% |
| Operating Expenses | $2.13B$2.06B | +3.6% |
| Operating Income | $1.79B$1.70B | +5.3% |
| Interest Expense | $205.99M$230.07M | −10.5% |
| Net Income | $928.83M$1.14B | −18.3% |
| EPS (Basic) | $6.56$8.13 | −19.3% |
| EPS (Diluted) | $6.56$8.12 | −19.2% |
| Shares Outstanding (Basic) | 141.31M139.63M | +1.2% |
| Shares Outstanding (Diluted) | 141.64M139.98M | +1.2% |
05—Questions
Frequently Asked Questions
Why did AVB's net income decline in 2023 if operating performance improved?
The decline is driven mainly by lower gains on the sale of communities, which fell to $287.4 million from $555.6 million as the company sold four wholly-owned communities in 2023 versus nine in 2022. Operating results improved: Same Store NOI rose 6.2%, and Core FFO per share increased about 8.6%. Investors who focus on recurring earnings should look at FFO and Core FFO, which exclude these disposition gains.
How is AVB's balance sheet and debt profile positioned?
Total debt principal was $8.04 billion at a weighted average rate of 3.5% at year-end 2023, down from $8.38 billion a year earlier. Unsecured notes made up about $7.3 billion of that. The company issued $400 million of 5.30% notes due 2033 and repaid $600 million of fixed-rate notes and the $150 million term loan. Debt maturities in 2024 are modest, at about $310 million, though the company will likely need to refinance debt at higher rates over time.
What are the main risks from the RealPage antitrust litigation and rent regulation?
AVB was voluntarily dismissed from private class actions tied to RealPage in 2023, but it was named in a November 2023 District of Columbia lawsuit against RealPage and 14 other multifamily operators. The company says it intends to defend vigorously and cannot yet estimate any loss. Separately, California statewide rent limits for buildings older than fifteen years, New York rent-stabilization rules, and emergency-declaration rent caps could limit pricing power and revenue growth in key markets.
What does the development pipeline mean for future growth?
AVB has 17 Development Communities under construction, expected to add 6,064 apartment homes at a projected total capitalized cost of about $2.49 billion, and it started six new communities in 2023 at an estimated $800 million cost. Successful lease-up at these communities should add NOI in 2024–2026. Risks include construction cost overruns, delays, and higher financing costs. The company also wrote off $27.5 million of Development Rights it no longer considers probable.
How has AVB's capital allocation and shareholder return policy evolved?
Management continued to emphasize a recycling model: selling four communities for $446 million and redeploying proceeds into development and acquisitions, including $277 million to acquire three communities. The company settled a $492 million equity forward and has $706 million remaining under its continuous equity program, plus $314 million under its share repurchase authorization, though it repurchased only 11,800 shares in 2023. Dividends paid totaled $923 million in 2023, and the 3.0% dividend increase for 2024 signals management's confidence in cash flow growth.
06—Continue