10-QPeriod: Q2 FY2014

AVALONBAY COMMUNITIES INC Quarterly Report for Q2 Ended Jun 30, 2014

Filed August 8, 2014For Securities:AVB

Summary

AvalonBay Communities, Inc. (AVB) reported a strong second quarter in 2014, with net income attributable to common stockholders surging 336.5% year-over-year to $158.1 million. This significant increase was driven by higher Net Operating Income (NOI) from new developments and acquisitions, reduced depreciation expenses related to the Archstone acquisition, and increased gains on property sales. The company continues to execute its growth strategy by developing, acquiring, and operating apartment communities in high-barrier-to-entry markets. During the quarter, AVB completed three communities and started construction on four new ones, with a substantial pipeline of 32 communities currently under construction totaling $3.2 billion in projected costs. The company also made progress on its development rights portfolio, which is expected to add an additional 11,350 apartment homes.

Financial Highlights

32 data points
Beta

Revenue

$413.81M

Net Income

$158.09M

38.2% Net Margin

EPS (Diluted)

$1.21

Total Assets

$15.66B

Cash & Equivalents

$425.74M

Free Cash Flow

$189.39M

Financial Statements
Beta
Revenue$413.81M
Operating Expenses$310.26M
Operating Income$277.55M
Interest Expense$43.72M
Net Income$158.09M
EPS (Basic)$1.22
EPS (Diluted)$1.21
Shares Outstanding (Basic)129.86M
Shares Outstanding (Diluted)130.25M

Key Highlights

  • 1Net income attributable to common stockholders increased by 336.5% to $158.1 million in Q2 2014, primarily due to growth in NOI, reduced depreciation from the Archstone acquisition, and gains on property sales.
  • 2Established Communities' NOI grew by 2.8% year-over-year, driven by a 3.1% increase in rental revenue, despite a slight rise in operating expenses.
  • 3AVB completed three new communities with 701 apartment homes and started construction on four new communities totaling 1,080 homes in Q2 2014.
  • 4The company's development pipeline remains robust, with 32 communities under construction totaling approximately $3.2 billion in projected capitalized costs.
  • 5Two wholly-owned operating communities were sold during the quarter, generating an aggregate GAAP gain of $44.3 million.
  • 6The company maintained strong liquidity, with unrestricted cash and cash equivalents increasing to $425.7 million by June 30, 2014.
  • 7Funds From Operations (FFO) per diluted share increased to $1.71 from $1.55 in the prior year's second quarter.

Frequently Asked Questions

The primary drivers for the substantial increase in net income were increased Net Operating Income (NOI) from newly developed and acquired communities, a decrease in depreciation expense related to in-place leases acquired as part of the Archstone Acquisition, and an increase in gains on the sale of communities.

As of June 30, 2014, AvalonBay had 32 communities under construction with a projected total capitalized cost of approximately $3.24 billion. Additionally, the company held interests in land for an estimated 40 future apartment communities, which could add approximately 11,350 homes.

The Archstone Acquisition significantly impacted the results, particularly by contributing to increased NOI from acquired communities. It also led to a decrease in depreciation expense related to in-place leases and influenced the classification and reporting of 'Established Communities' in the current period.

AvalonBay reported strong liquidity, with unrestricted cash and cash equivalents totaling $425.7 million as of June 30, 2014, an increase from the prior year-end. The company expects to meet its liquidity needs through operating cash flows, existing cash, borrowings under its credit facility, debt financing, and equity issuances.