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AvalonBay Communities, Inc. Announces First Quarter 2009 Operating Results (Business Wire)

Wed, 29 Apr 2009 20:01:00 Etc/GM

Funds from Operations attributable to common stockholders - diluted (“FFO”) for the quarter ended March 31, 2009 increased 2.4% to $1.27 per share from $1.24 per share for the comparable period of 2008.

FFO and Net Income for the quarter ended March 31, 2009 include the following non-routine items:

  • Incremental earnings due primarily to the recognition of the Company's promoted interest in a joint venture of $3,894,000, or $0.05 per share; and
  • a gain of $1,062,000, or $0.01 per share from purchasing medium-term notes at a discount prior to the scheduled maturity.

In addition, the period-over-period results are impacted by the 2,627,000 additional shares issued in January 2009 as part of the special dividend declared in the fourth quarter of 2008.

Commenting on the Company's results, Bryce Blair, Chairman and CEO, said: “Portfolio operations performed largely as expected. The closing of our $740 million secured facility, the final closing of our $400 million acquisition fund and the reduction in our development activity all strengthen our liquidity and provide capital to pursue emerging investment opportunities. While accelerated job losses during the quarter will likely affect future rental demand, a strong balance sheet and access to cost effective capital help mitigate the overall financial impact.”

Operating Results for the Quarter Ended March 31, 2009 Compared to the Prior Year Period

For the Company, including discontinued operations, total revenue increased by $3,491,000, or 1.6% to $219,679,000. For Established Communities, rental revenue decreased 0.7% due to a decrease in economic occupancy of 0.9%, partially offset by an increase in Average Rental Rates of 0.2%. As a result, total revenue for Established Communities decreased $1,053,000 to $158,072,000. Operating expenses for Established Communities increased $1,197,000, or 2.4% to $52,046,000. Accordingly, Net Operating Income (“NOI”) for Established Communities decreased by $2,250,000, or 2.1% to $106,026,000.

The following table reflects the percentage changes in rental revenue, operating expenses and NOI for Established Communities from the first quarter of 2008 to the first quarter of 2009:

                 
 
1Q 09 Compared to 1Q 08
       
Rental Operating % of
Revenue Expenses NOI NOI (1)
 
New England (2.2 %) (1.0 %) (2.8 %) 19.4 %
Metro NY/NJ (1.5 %) 4.4 % (4.2 %) 26.3 %

Mid-Atlantic/Midwest

0.8 % 3.3 % (0.6 %) 16.7 %
Pacific NW 0.6 % 0.9 % 0.4 % 4.9 %
No. California 1.6 % 1.5 % 1.7 % 21.5 %
So. California (2.7 %) 4.9 % (5.6 %) 11.2 %
Total (0.7 %) 2.4 % (2.1 %) 100.0 %
 
 

(1) Total represents each region's % of total NOI from the Company, including discontinued operations.

 

Cash concessions are recognized in accordance with generally accepted accounting principles (“GAAP”) and are amortized over the approximate lease term, which is generally one year. Both Rental Revenue with Concessions on a Cash Basis and on a GAAP basis for our Established Communities for the first quarter of 2009 decreased by 0.7% from the prior year period.

Development Activity

During the first quarter of 2009, the Company completed the development of two communities: Avalon Morningside Park, located in New York, NY and Avalon at the Hingham Shipyard, located in Hingham, MA. These communities contain an aggregate 530 apartment homes and were completed for an aggregate Total Capital Cost of $172,500,000.

Investment Management Fund Activity

The Company currently has investments in and serves as the manager for two private, discretionary investment management vehicles.

AvalonBay Value Added Fund, L.P. (the “Fund”) is a private, discretionary investment vehicle in which the Company holds an equity interest of approximately 15%.

AvalonBay Value Added Fund II, L.P. (“Fund II”) is a private, discretionary investment vehicle with commitments from five institutional investors. In addition, the Company is an investor in Fund II.

As of March 31, 2009, Fund II equity commitments totaled $333,000,000, of which the Company committed $150,000,000, representing a 45% equity interest. As of March 31, 2009, no capital was contributed to Fund II and no investments were made.

In April 2009, the Company announced the second and final closing of Fund II. In this closing, total equity commitments to Fund II increased by $67,000,000 as a result of the following:

  • a new institutional investor made an equity commitment of $75,000,000;
  • an existing institutional investor increased its commitment by $17,000,000, based on terms of its existing commitment; and
  • the Company decreased its commitment by $25,000,000, based on terms of its existing commitment, decreasing the Company's equity interest to approximately 31%.

With the final closing, Fund II equity commitments now total $400,000,000 (including the Company's $125,000,000 commitment). Fund II can employ leverage of up to 65%, allowing for an investment capacity of approximately $1,100,000,000.

Financing, Liquidity and Balance Sheet Statistics

At March 31, 2009, $359,000,000 was outstanding under the Company's $1,000,000,000 unsecured credit facility and the Company had $259,990,000 in unrestricted cash and cash in escrow. The cash in escrow is available for development activity. Unencumbered NOI as a percentage of total NOI generated by real estate assets for the first quarter of 2009 was 77%. Interest Coverage for the first quarter of 2009 was 4.4 times.

New Financing Activity

In April 2009, the Company completed a 5.86% fixed rate, pooled secured financing transaction for aggregate borrowing of $741,140,000. The financing consists of fourteen separate mortgage loans each with a 10-year term. Each loan provides for payment of interest only during the first and second years of the loan term, with payment of principal and interest (based on a 30 year amortization schedule) thereafter and the remaining principal amount and any unpaid interest due at maturity on the tenth anniversary.

Debt Repayment Activity

In January 2009, the Company made a cash tender offer for any and all of its 7.5% medium-term notes due in August 2009 and December 2010. The Company purchased at par $37,438,000 principal amount of its $150,000,000, 7.5% medium-term notes due in August 2009. In addition, the Company purchased $64,423,000 principal amount of its $200,000,000, 7.5% medium-term notes due December 2010, at 98% of par, recording a gain of $1,062,000. All of the notes purchased in the tender offer were cancelled.

Second Quarter 2009 Financial Outlook

For the second quarter of 2009, the Company expects EPS in the range of $0.49 to $0.53 and expects Projected FFO per share in the range of $1.16 to $1.20.

The Company expects to release its second quarter 2009 earnings on July 29, 2009 after the market closes. The Company expects to hold a conference call on July 30, 2009 at 1:00 PM EDT to discuss the second quarter 2009 results.

Second Quarter 2009 Conference/Event Schedule

The Company is scheduled to participate in the NAREIT Institutional Investor Forum from June 3-5, 2009. The Company will present and conduct a question and answer session at the conference. Management may discuss the Company's current operating environment; operating trends; development, redevelopment, disposition and acquisition activity; financial outlook and other business and financial matters affecting the Company. Details on how to access related materials will be available beginning June 1, 2009 on the Company's website at http://www.avalonbay.com/events.

Other Matters

The Company will hold a conference call on April 30, 2009 at 1:00 PM EDT to review and answer questions about this release, its first quarter results, the Attachments (described below) and related matters. To participate on the call, dial 1-877-510-2397 domestically and 1-763-416-6924 internationally.

To hear a replay of the call, which will be available from April 30, 2009 at 2:00 PM EDT to May 6, 2009 at 11:59 PM EDT, dial 1-800-642-1687 domestically and 1-706-645-9291 internationally, and use Access Code: 92862758.

A webcast of the conference call will also be available at http://www.avalonbay.com/earnings, and an on-line playback of the webcast will be available for at least 30 days following the call.

The Company produces Earnings Release Attachments (the “Attachments”) that provide detailed information regarding operating, development, redevelopment, disposition and acquisition activity. These Attachments are considered a part of this earnings release and are available in full with this earnings release via the Company's website at http://www.avalonbay.com/earnings. To receive future press releases via e-mail, please submit a request through http://www.avalonbay.com/email.

About AvalonBay Communities, Inc.

As of March 31, 2009, the Company owned or held a direct or indirect ownership interest in 173 apartment communities containing 50,291 apartment homes in ten states and the District of Columbia, of which 12 communities were under construction and seven communities were under reconstruction. The Company is an equity REIT in the business of developing, redeveloping, acquiring and managing apartment communities in high barrier-to-entry markets of the United States. More information may be found on the Company's website at http://www.avalonbay.com. For additional information, please contact John Christie, Senior Director of Investor Relations and Research at 1-703-317-4747 or Thomas J. Sargeant, Chief Financial Officer at 1-703-317-4635.

Forward-Looking Statements

This release, including its Attachments, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. You can identify these forward-looking statements by the Company's use of words such as “expects,” “plans,” “estimates,” “projects,” “intends,” “believes,” “outlook” and similar expressions that do not relate to historical matters. Actual results may differ materially from those expressed or implied by the forward-looking statements as a result of risks and uncertainties, which include the following: adverse capital and credit market conditions may affect our access to various sources of capital and/or cost of capital, which may affect our business activities, earnings and common stock price, among other things; changes in local employment conditions, demand for apartment homes, supply of competitive housing products, and other economic conditions may result in lower than expected occupancy and/or rental rates and adversely affect the profitability of our communities; increases in costs of materials, labor or other expenses may result in communities that we develop or redevelop failing to achieve expected profitability; delays in completing development, redevelopment and/or lease-up may result in increased financing and construction costs and may delay and/or reduce the profitability of a community; debt and/or equity financing for development, redevelopment or acquisitions of communities may not be available or may not be available on favorable terms; we may be unable to obtain, or experience delays in obtaining, necessary governmental permits and authorizations; or we may abandon development or redevelopment opportunities for which we have already incurred costs. Additional discussions of risks and uncertainties appear in the Company's filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008 under the headings “Risk Factors” and under the heading “Management's Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Statements.”

The Company does not undertake a duty to update forward-looking statements, including its expected operating results for the second quarter of 2009. The Company may, in its discretion, provide information in future public announcements regarding its outlook that may be of interest to the investment community. The format and extent of future outlooks may be different from the format and extent of the information contained in this release.

Definitions and Reconciliations

Non-GAAP financial measures and other capitalized terms, as used in this earnings release, are defined and further explained on Attachment 13, “Definitions and Reconciliations of Non-GAAP Financial Measures and Other Terms.” Attachment 13 is included in the full earnings release available at the Company's website at http://www.avalonbay.com/earnings. This wire distribution includes only definitions and reconciliations of the following Non-GAAP financial measures:

FFO is determined based on a definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). FFO is calculated by the Company as Net Income or loss computed in accordance with GAAP, adjusted for gains or losses on sales of previously depreciated operating communities, extraordinary gains or losses (as defined by GAAP), cumulative effect of a change in accounting principle and depreciation of real estate assets, including adjustments for unconsolidated partnerships and joint ventures. Management generally considers FFO to be an appropriate supplemental measure of operating performance because, by excluding gains or losses related to dispositions of previously depreciated operating communities and excluding real estate depreciation (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO can help one compare the operating performance of a company's real estate between periods or as compared to different companies. A reconciliation of FFO to Net Income is as follows (dollars in thousands):

           
     
Q1 Q1
2009 2008
 
 
Net income attributable to the Company $ 47,425 $ 48,450
Dividends attributable to preferred stock -- (2,175 )
Depreciation - real estate assets,
including discontinued operations
and joint venture adjustments 53,525 49,785

Distributions to noncontrolling interests,

including discontinued operations 25 57
   
FFO attributable to common stockholders $ 100,975 $ 96,117  
 
Average shares outstanding - diluted 79,792,281 77,440,892
 
Earnings per share - diluted $ 0.59 $ 0.60  
 
FFO per common share - diluted $ 1.27 $ 1.24  
           

Projected FFO, as provided within this release in the Company's outlook, is calculated on a basis consistent with historical FFO, and is therefore considered to be an appropriate supplemental measure to projected net income from projected operating performance. A reconciliation of the range provided for Projected FFO per share (diluted) for the second quarter of 2009 to the range provided for projected EPS (diluted) is as follows:

             
       
Low High
range range
 
Projected EPS (diluted) - Q2 09 $

0.49

$

0.53

Projected depreciation (real estate related) 0.67 0.67
Projected gain on sale of operating communities   --   --
 
Projected FFO per share (diluted) - Q2 09 $

1.16

$

1.20

             

NOI is defined by the Company as total property revenue less direct property operating expenses (including property taxes), and excludes corporate-level income (including management, development and other fees), corporate-level property management and other indirect operating expenses, investments and investment management expenses, expensed development and other pursuit costs, net interest expense, general and administrative expense, joint venture income, net income or expense attributable to noncontrolling interests, depreciation expense, gain on sale of real estate assets and income from discontinued operations. The Company considers NOI to be an appropriate supplemental measure to net income of operating performance of a community or communities because it helps both investors and management to understand the core operations of a community or communities prior to the allocation of corporate-level property management overhead or general and administrative costs. This is more reflective of the operating performance of a community, and allows for an easier comparison of the operating performance of single assets or groups of assets. In addition, because prospective buyers of real estate have different overhead structures, with varying marginal impact to overhead by acquiring real estate, NOI is considered by many in the real estate industry to be a useful measure for determining the value of a real estate asset or groups of assets.

A reconciliation of NOI (from continuing operations) to Net Income, as well as a breakdown of NOI by operating segment, is as follows (dollars in thousands):

           
     
Q1 Q1
2009 2008
 
Net income attributable to the Company $ 47,425 $ 48,450
 
Indirect operating expenses, net of corporate income 8,575 8,458
Investments and investment management expense 916 1,219
Expensed development and other pursuit costs 1,093 500
Interest expense, net 29,157 27,661
General and administrative expense 7,247 8,119
Joint venture income (3,457 ) (34 )

Net (income) loss attributable to noncontrolling interests

(324 ) 106
Depreciation expense 52,627 45,941
Income from discontinued operations   (53 )   (4,820 )
 
NOI from continuing operations $ 143,206  

source: http://biz.yahoo.com/bw/090429/20090429006288.html?.v=1

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