10-QPeriod: Q2 FY2015

AVALONBAY COMMUNITIES INC Quarterly Report for Q2 Ended Jun 30, 2015

Filed August 6, 2015For Securities:AVB

Summary

AvalonBay Communities Inc. (AVB) reported strong operational performance for the second quarter of 2015. Net income attributable to common stockholders increased by 9.0% year-over-year to $172.3 million, primarily driven by increased Net Operating Income (NOI) from both new developments and established communities. Rental revenue saw a healthy increase of 10.6% for the quarter, supported by a 4.7% rise in rental revenue from established communities, largely due to a 5.0% increase in average rental rates. The company also benefited from gains related to insurance recoveries and debt extinguishment. The company continues to execute its growth strategy, with significant activity in development and redevelopment. During the quarter, AVB completed three communities totaling 874 apartment homes and started construction on four new communities representing 1,368 homes. The development pipeline remains robust, with 26 communities under construction and 34 future development rights. This expansion, coupled with strong operating fundamentals in key markets like Northern and Southern California, positions AVB for continued growth, although it also leads to increased operating expenses and capital expenditures.

Financial Highlights

33 data points
Beta

Revenue

$457.46M

Net Income

$172.32M

37.7% Net Margin

EPS (Diluted)

$1.29

Total Assets

$16.32B

Cash & Equivalents

$65.13M

Free Cash Flow

$255.52M

Financial Statements
Beta
Revenue$457.46M
Operating Expenses$307.34M
Operating Income$310.99M
Interest Expense$44.59M
Net Income$172.32M
EPS (Basic)$1.30
EPS (Diluted)$1.29
Shares Outstanding (Basic)131.98M
Shares Outstanding (Diluted)133.09M

Key Highlights

  • 1Net income attributable to common stockholders increased by 9.0% to $172.3 million for Q2 2015, demonstrating solid profitability growth.
  • 2Total revenue grew by 10.5% to $457.5 million, reflecting strong top-line performance.
  • 3Established Communities' Net Operating Income (NOI) increased by 5.0% year-over-year, driven by a 4.7% rise in rental revenue and a 5.0% increase in average rental rates.
  • 4The company completed three new communities with 874 homes and started construction on four additional communities with 1,368 homes, underscoring its active development pipeline.
  • 5Significant investment in development and redevelopment, with 26 communities totaling 8,117 homes under construction and 34 future development rights representing 10,080 homes.
  • 6FFO per diluted common share increased to $2.18 from $1.71 in the prior year's quarter, indicating improved operational cash flow.
  • 7The company maintained compliance with financial covenants, indicating a stable financial position despite ongoing development activities.

Frequently Asked Questions

The primary driver of AvalonBay's revenue growth in the second quarter of 2015 was the increase in rental and other income, which rose by 10.6%. This was supported by strong operating performance from stabilized communities and robust leasing activity for new developments, leading to higher rental rates and increased rental revenue from both established and newly developed properties.

AvalonBay is funding its development pipeline through a combination of sources. This includes operating cash flows, borrowings under its credit facility, the issuance of corporate securities (such as unsecured debt), proceeds from asset sales, and potentially joint venture activities. The company also has existing cash on hand and recently issued unsecured notes to bolster its liquidity for these capital-intensive activities.

The Edgewater fire, which occurred in January 2015, resulted in property damage and related losses. While the company received insurance proceeds that contributed to a casualty and impairment gain, it also led to legal proceedings, including class action lawsuits and governmental investigations. The company believes its remaining liabilities and replacement costs will be substantially covered by insurance, but it is actively reviewing its maintenance policies and facing citations and potential future legal actions.

Funds From Operations (FFO) attributable to common stockholders increased significantly by 30.6% to $290.5 million for the second quarter of 2015, compared to $222.5 million in the prior year period. This growth was driven by higher net income and the add-back of real estate depreciation and gains/losses on property sales, indicating strong underlying operating performance.