10-QPeriod: Q2 FY2017

AVALONBAY COMMUNITIES INC Quarterly Report for Q2 Ended Jun 30, 2017

Filed August 4, 2017For Securities:AVB

Summary

AvalonBay Communities, Inc. (AVB) reported a decrease in net income attributable to common stockholders for the second quarter of 2017, primarily due to increased debt extinguishment losses and lower joint venture real estate sales. Despite this, Net Operating Income (NOI) from established communities saw a modest increase of 2.1%, driven by a 2.5% rise in rental revenue, though partially offset by a 3.5% increase in operating expenses. The company continued its development and acquisition strategy, completing four communities with 1,489 apartment homes in Q2 2017 and maintaining a substantial pipeline of 23 communities under construction. AvalonBay also demonstrated active capital management by repaying significant amounts of debt and issuing new notes, reflecting a strategic approach to balance sheet optimization. Investors should note the significant debt extinguishment charges incurred, which impacted net income, while the underlying operational performance of its core communities showed resilience.

Financial Highlights

33 data points
Beta

Revenue

$530.51M

Net Income

$165.22M

31.1% Net Margin

EPS (Diluted)

$1.20

Total Assets

$17.94B

Cash & Equivalents

$53.48M

Free Cash Flow

$275.76M

Financial Statements
Beta
Revenue$530.51M
Operating Expenses$410.47M
Operating Income$358.41M
Interest Expense$50.10M
Net Income$165.22M
EPS (Basic)$1.20
EPS (Diluted)$1.20
Shares Outstanding (Basic)137.58M
Shares Outstanding (Diluted)138.17M

Key Highlights

  • 1Net income attributable to common stockholders decreased by 16.3% to $165.2 million in Q2 2017 compared to the prior year, largely due to debt extinguishment losses.
  • 2Established Communities NOI increased by 2.1% to $277.0 million in Q2 2017, driven by a 2.5% increase in rental revenue, though operating expenses rose by 3.5%.
  • 3The company completed four new communities totaling 1,489 apartment homes in Q2 2017 with a capitalized cost of $400 million.
  • 4As of June 30, 2017, AVB had 23 communities under construction, representing 6,965 apartment homes with a projected total capitalized cost of $3.24 billion.
  • 5One wholly-owned operating community was sold in Q2 2017 for $112.5 million, resulting in a GAAP gain of $42.6 million.
  • 6The company incurred a significant loss of $24.2 million on the extinguishment of debt related to the early repayment of fixed-rate mortgage notes.
  • 7Net cash provided by operating activities increased slightly to $562.4 million for the first six months of 2017 compared to the prior year.

Frequently Asked Questions

The primary reasons for the decrease in net income for the three months ended June 30, 2017, were an increase in debt extinguishment losses compared to the prior year period and a decrease in joint venture real estate sales and related gains. Additionally, increased depreciation and interest expense contributed to the decline.

AvalonBay is actively managing its debt by repaying significant principal amounts of fixed-rate secured notes and issuing new unsecured notes. They also utilize a revolving credit facility. The company aims to maintain a balance sheet that provides flexibility while managing liquidity needs, evidenced by debt repayment and refinancing activities undertaken in the quarter.

For established communities, rental revenue increased by 2.5% year-over-year in Q2 2017, driven by a 2.5% increase in average rental rates. Economic occupancy remained high at 95.4%. The company anticipates varied operating conditions across different regions, with some urban submarkets facing challenges due to new deliveries while suburban submarkets remain more stable.

The company has a substantial development pipeline, with 23 communities under construction totaling 6,965 apartment homes and a projected capitalized cost of $3.24 billion. They also have rights to develop an additional 25 communities. While development represents a significant investment and future growth driver, it also involves substantial capital outlay and associated risks, as detailed in the 'Risk Factors' section.