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| AvalonBay Communities, Inc. Announces First Quarter 2003 Operating Results |
ALEXANDRIA, Va., April 29 /PRNewswire-FirstCall/ -- AvalonBay Communities, Inc. (NYSE: AVB; PCX) reported today that Net Income Available to Common Stockholders for the quarter ended March 31, 2003 was $33,700,000, resulting in Earnings per Share ("EPS") of $0.49 (diluted), compared to $0.51 (diluted) for the comparable period of 2002, a per share decrease of 3.9%. Funds from Operations ("FFO") for the quarter ended March 31, 2003 was $57,557,000 or $0.83 per share (diluted) compared to $69,710,000 or $0.99 per share (diluted) for the comparable period of 2002, a per share decrease of 16.2%. Net Operating Income ("NOI") from continuing operations for the quarter ended March 31, 2003 decreased by $4,258,000 or 4.0% to $103,504,000 compared to the comparable period of 2002. NOI from assets sold or held for sale as of March 31, 2003 decreased by $1,638,000 or 31.0% to $3,643,000 for the quarter ended March 31, 2003 as compared to the comparable period in 2002. Operating Results for the Quarter Ended March 31, 2003 Compared to the Prior Year Period For the Company, including discontinued operations, total revenue increased by $1,415,000, or 0.9% to $160,224,000, and earnings before interest, income taxes, depreciation and amortization ("EBITDA") decreased by $5,812,000 or 5.8% to $95,253,000. EBITDA during the quarter ended March 31, 2003 was impacted by lower revenue from soft market conditions and higher expenses due to inclement weather. The Company estimates that severe winter weather impacted overall operating results by approximately $1,440,000. For Established Communities, rental revenue decreased 5.8%, comprised of a rental rate decline of 6.2% and an increase in economic occupancy of 0.4%. Total revenue decreased $6,962,000 to $113,354,000 and operating expenses increased $2,969,000, or 9.2%. Accordingly, NOI decreased by $9,931,000 or 11.3%. The Company estimates that severe winter weather contributed to the increase in operating expenses and the decrease in NOI for Established Communities by approximately $970,000. The following table reflects the percentage changes in rental revenue, operating expenses and NOI for Established Communities from the first quarter of 2002 to the first quarter of 2003: 1Q 03 Compared to 1Q 02 Established Communities Total* Rental Operating % of Revenue Expenses NOI NOI Northeast (5.2%) 14.4% (12.7%) 35.9% Mid-Atlantic (3.8%) 10.3% (8.7%) 15.6% Midwest (7.9%) 9.8% (20.3%) 3.9% Pacific NW (9.0%) 1.2% (13.9%) 5.3% No. California (8.9%) 4.6% (13.1%) 26.3% So. California 2.9% 8.1% 0.9% 13.0% Total (5.8%) 9.2% (11.3%) 100.0% * Total represents each region's % of total NOI from the Company, including discontinued operations. Sequential Operating Results for the Quarter Ended March 31, 2003 Compared to the Quarter Ended December 31, 2002 The following table reflects the sequential percentage changes in rental revenue, operating expenses and NOI for Established Communities from the fourth quarter of 2002 to the first quarter of 2003: 1Q 03 Compared to 4Q 02 Established Communities Rental Operating Revenue Expenses NOI Northeast (1.3%) 4.7% (4.4%) Mid-Atlantic (0.8%) 5.7% (3.3%) Midwest 0.9% 20.1% (12.5%) Pacific NW (2.0%) (0.4%) (2.8%) No. California (2.0%) (8.1%) 0.5% So. California (0.5%) 2.7% (1.7%) Total (1.3%) 1.2% (2.5%) Established Communities Operating Statistics Market Rents, as determined by the Company, declined by an average of 2.0% in the first quarter compared to the same quarter in the prior year. The greatest declines, on a year over year basis, were in Oakland-East Bay, CA with a decline of 6.1% from the first quarter of 2002, San Jose, CA with a decline of 5.7% and New York with a decline of 4.0%. Sequentially, as compared to the fourth quarter of 2002, market rents declined 0.7% with the largest declines in Chicago at 1.6% and in Fairfield-New Haven, CT at 1.6%. Economic Occupancy was 93.4% during the first quarter 2003, increasing 0.4% over the same quarter last year. Sequentially, from the fourth quarter of 2002 to the first quarter of 2003, Economic Occupancy decreased 0.5%. The largest declines in the first quarter 2003 as compared to the fourth quarter 2002 were in Los Angeles at 2.9% and Central New Jersey at 2.4%. Cash concessions as a percentage of Market Rent for Established Communities averaged 2.2% during the first quarter of 2003, as compared to 1.4% in the first quarter of 2002 and 2.6% in the fourth quarter of 2002. During the first quarter of 2003, cash concessions as a percentage of Market Rent were highest in Chicago at 5.5% and Washington, D.C. at 4.4%. In accordance with Generally Accepted Accounting Principles ("GAAP"), cash concessions are amortized over the approximate lease term, which is generally one year. However, the Company considers rental revenue with concessions stated on a cash basis to be a supplemental measure to rental revenue in conformity with GAAP in helping investors to understand the impact of concessions on rental revenue and to more readily enable comparisons to revenue as reported by other companies. A reconciliation of rental revenue from Established Communities in conformity with GAAP to rental revenue adjusted to state concessions on a cash basis is as follows (dollars in thousands): Established Communities Q1 03 Q1 02 Q4 02 Rental revenue (GAAP basis) $113,332 $120,293 $114,843 Concessions amortized 2,539 1,151 2,188 Concessions granted (2,613) (1,741) (3,225) Rental revenue (cash basis) $113,258 $119,703 $113,806 Q1 03 % change -- GAAP revenue (5.8%) (1.3%) Q1 03 % change -- cash revenue (5.4%) (0.5%) Development Activity The Company completed two development communities during the first quarter of 2003 for a Total Capital Cost, in the aggregate, of approximately $99,100,000. Avalon on Stamford Harbor, located in Stamford, Connecticut, is a mid-rise community containing 323 apartment homes and was completed for a Total Capital Cost of $60,700,000. Avalon at Flanders Hill, located in the greater Boston, Massachusetts area, is a garden-style community containing 280 apartment homes and was completed for a Total Capital Cost of $38,400,000. Disposition Activity The Company sold one community, Avalon Westside Terrace (located in Los Angeles, California), during the first quarter of 2003. This 363 apartment home community was originally constructed in 1966 and was acquired by the Company in 1997. The sales price for this community was $46,700,000, resulting in a gain as reported in accordance with GAAP of $14,072,000. The gross capitalized cost (before accumulated depreciation) at the date of sale was $37,252,000 and the Initial Year Market Cap Rate relating to this community was 5.9%. Financing, Liquidity and Balance Sheet Statistics As of March 31, 2003, the Company had $175,000,000 outstanding under its $500,000,000 unsecured credit facility and unrestricted cash of approximately $47,853,000. Unrestricted cash as of March 31, 2003 included the net proceeds from the sale of Avalon Westside Terrace of approximately $46,400,000, which were used to repay a portion of the unsecured credit facility subsequent to March 31, 2003. The remaining available cash, the unsecured credit facility, net proceeds from anticipated asset sales in 2003 and cash retained from operations, will be used to fund development and redevelopment activity, provide letters of credit, repay debt and repurchase/redeem equity securities. Leverage, as measured by debt as a percentage of total market capitalization, was 48.8% at March 31, 2003. EBITDA covered interest expense (including discontinued operations), net of interest income, by 2.8 times. For the first quarter of 2003, Unencumbered NOI was approximately 80%. Stock Activity In July 2002, the Company announced a common stock repurchase program, under which the Company may acquire shares of its common stock in open market or negotiated transactions. As of March 31, 2003, the Company had repurchased 2,380,600 shares of common stock at an aggregate cost of $89,566,000 through this program. Of the aggregate shares repurchased, the Company repurchased 1,099,000 during the quarter ended March 31, 2003 at an average price of $36.24 per share. On March 20, 2003, the Company redeemed all 3,267,700 outstanding shares of its 8.00% Series D Cumulative Redeemable Preferred Stock at a price of $25.00 per share, plus $0.0167 in accrued and unpaid dividends. The redemption was funded by the sale on March 18, 2003 of 3,336,611 shares of Series J Cumulative Redeemable Preferred Stock through a private placement to an institutional investor. The dividend rate on the Series J Cumulative Redeemable Preferred Stock is initially based upon three month LIBOR plus 1.5% and is redeemable at any time at the Company's option. The Company expects to redeem all of the Series J Cumulative Redeemable Preferred Stock during the second quarter of 2003. Adoption of Statement of Financial Accounting Standards No. 123 Effective January 1, 2003, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," prospectively to all employee stock option awards granted, modified, or settled on or after January 1, 2003. The adoption of this statement impacted EPS for the quarter ended March 31, 2003 by less than $0.01. Outlook For the second quarter 2003, the Company expects EPS (diluted) in the range of $1.18 to $1.23 and FFO per share (diluted) in the range of $0.79 to $0.84. For the full year 2003, the Company expects EPS (diluted) in the range of $3.17 to $3.37, reflecting the impact of additional planned dispositions. The Company provided a full year 2003 range for FFO per share (diluted) of $3.15 to $3.35 in December 2002 and affirms that range as of April 29, 2003. Other Matters The Company will hold a conference call on April 30, 2003 at 1:00 PM Eastern Time (EDT) to review and answer appropriate questions about these results and projections, the earnings release attachments described below, and related matters. The domestic number to call to participate is 1-877-510-2397. The international number to call to participate is 1-706-634-5877. The domestic number to hear a replay of this call is 1-800-642-1687, and the international number to hear a replay of this call is 1-706-645-9291 - Access Code: 9409911. 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. In addition to Attachment 13 included herein and referred to below, the Company produces additional Earnings Release Attachments (collectively, with Attachment 13, 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 and through e-mail distribution. Access to the full earnings release including the Attachments through the Company's website is available at http://www.avalonbay.com/earnings. If you would like to receive future press releases via e-mail, please register through the Company's website at http://www.avalonbay.com/Template.cfm?Section=Subscribe. Some items referenced in the earnings release may require the Adobe Acrobat 5.0 Reader. If you do not have the Adobe Acrobat 5.0 Reader, you may download it at the following website address: http://www.adobe.com/products/acrobat/readstep.html. Definitions and Reconciliations The following non-GAAP financial measures and other terms, as used in the text of this earnings release, are defined and further explained on Attachment 13, "Definitions and Reconciliations of Non-GAAP Financial Measures and Other Terms": * FFO * NOI * EBITDA * Market Rents * Economic Occupancy * Leverage * Total Capital Cost * Initial Year Market Cap Rate * Unencumbered NOI About AvalonBay Communities, Inc. AvalonBay currently owns or holds an ownership interest in 147 apartment communities containing 43,245 apartment homes in eleven states and the District of Columbia, of which ten communities are under construction and two communities are under reconstruction. AvalonBay is an equity REIT in the business of developing, redeveloping, acquiring and managing upscale apartment communities in high barrier-to-entry markets of the United States. More information on AvalonBay may be found on AvalonBay's Website at http://www.avalonbay.com. For additional information, please contact Bryce Blair, Chairman, Chief Executive Officer and President, at 703-317-4652 or Thomas J. Sargeant, Executive Vice President and Chief Financial Officer, at 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 the words "expects," "plans," "estimates," "projects," "intends," "believes" and similar expressions. Actual results may differ materially from those expressed or implied by the forward-looking statements as a result of certain risks and uncertainties, including, but not limited to, possible changes in demand for apartment homes, the effects of economic conditions (including interest rates), the impact of competition and competitive pricing, delays in completing developments and lease-ups on schedule, changes in construction costs, the results of financing efforts, the timing and closing of planned dispositions under agreement, the effects of the Company's accounting policies and other matters detailed 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, 2002 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 or the full year 2003. 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. AvalonBay Communities, Inc. Definitions and Reconciliations of Non-GAAP Financial Measures and Other Terms This release, including its attachments, contains certain non-GAAP financial measures and other terms. The definition and calculation of these non-GAAP financial measures and other terms may differ from the definitions and methodologies used by other REITs and, accordingly, may not be comparable. The non-GAAP financial measures referred to below should not be considered an alternative to net income as an indication of our performance. In addition, these non-GAAP financial measures do not represent cash generated from operating activities in accordance with GAAP and therefore should not be considered as an alternative measure of liquidity or as indicative of cash available to fund cash needs. FFO is determined based on a definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") and is calculated by the Company as net income or loss computed in accordance with GAAP, except that excluded from net income or loss are gains or losses on sales of property, impairment losses on planned dispositions and extraordinary gains or losses (as defined by GAAP); plus depreciation of real estate assets; and after adjustments for unconsolidated partnerships and joint ventures. Management generally considers FFO to be a useful measure for reviewing the comparative operating and financial performance of the Company (although it should be reviewed in conjunction with net income, which remains the primary measure of performance) because, by excluding gains or losses related to dispositions of property 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 2003 2002 Net income $37,388 $40,721 Dividends attributable to preferred stock (3,688) (5,031) Depreciation (real estate related) 36,839 31,512 Depreciation (discontinued operations) 304 1,782 Joint venture adjustments 403 321 Minority interest 383 405 Gain on sale of communities (14,072) -- FFO available to common stockholders $57,557 $69,710 Average shares outstanding - diluted 69,116,783 70,621,853 EPS - diluted $0.49 $0.51 FFO per common share - diluted $0.83 $0.99 Projected FFO, as provided within this release in the Company's outlook for 2003, is calculated on a consistent basis as historical FFO, and is therefore considered to be an appropriate supplemental measure to projected net income of projected operating performance. A reconciliation of the range provided for Projected FFO per share (diluted) for both the second quarter and the full year 2003 to the range provided for projected EPS (diluted) is as follows: Low High range range Projected EPS (diluted) - Q2 03 $1.18 $1.23 Projected depreciation (real estate related) 0.54 0.58 Projected gain on sale of communities (0.93) (0.97) Projected FFO per share (diluted) - Q2 03 $0.79 $0.84 Projected EPS (diluted) - Full Year 2003 $3.17 $3.37 Projected depreciation (real estate related) 2.11 2.19 Projected gain on sale of communities (2.13) (2.21) Projected FFO per share (diluted) - Full Year 2003 $3.15 $3.35 NOI is defined by the Company as total revenue less direct property operating expenses (including property taxes), and excludes property management and other indirect operating expenses, interest income and expense, general and administrative expense, joint venture income and minority interest, depreciation expense, gain or loss on sale of communities, impairment loss on planned dispositions and discontinued operations. Management generally considers NOI to be an appropriate supplemental measure to net income of operating performance because it helps investors to understand the core operations of a community or communities, as well as provide insight into how management evaluates operations on a segment basis. A reconciliation of NOI to net income is as follows (dollars in thousands): Q1 Q1 Q4 2003 2002 2002 Net income $37,388 $40,721 $66,842 Property management and other indirect operating expenses 7,997 8,486 8,054 Interest income (902) (1,132) (964) Interest expense 34,369 27,351 33,264 General and administrative 3,631 3,607 3,440 Joint venture income and minority interest 70 (316) 1,277 Depreciation expense 37,971 32,151 37,121 Impairment loss on planned dispositions -- -- 6,800 Gain on sale of communities (14,072) -- (48,893) Discontinued operations (2,948) (3,106) (2,917) Net operating income $103,504 $107,762 $104,024 A detail of NOI by region and reportable segment is provided in the table below (dollars in thousands): Total Operating revenue expenses (1) NOI For the Quarter Ended March 31, 2003: Established: Northeast $37,998 $(12,801) $25,197 Mid-Atlantic 17,089 (5,081) 12,008 Midwest 4,099 (2,002) 2,097 Pacific NW 6,884 (2,493) 4,391 No. California 35,901 (9,655) 26,246 So. California 11,383 (3,338) 8,045 Total Established 113,354 (35,370) 77,984 Other Stabilized 24,674 (8,330) 16,344 Development/Redevelopment (2) 15,928 (6,752) 9,176 Total from continuing operations $153,956 $(50,452) $103,504 For the Quarter Ended March 31, 2002: Established: Northeast $40,062 $(11,192) $28,870 Mid-Atlantic 17,761 (4,607) 13,154 Midwest 4,453 (1,823) 2,630 Pacific NW 7,564 (2,465) 5,099 No. California 39,414 (9,227) 30,187 So. California 11,062 (3,087) 7,975 Total Established 120,316 (32,401) 87,915 Other Stabilized 22,155 (7,299) 14,856 Development/Redevelopment (2) 8,032 (3,041) 4,991 Total from continuing operations $150,503 $(42,741) $107,762 For the Quarter Ended December 31, 2002: Established: Northeast $38,578 $(12,229) $26,349 Mid-Atlantic 17,222 (4,807) 12,415 Midwest 4,063 (1,667) 2,396 Pacific NW 7,024 (2,504) 4,520 No. California 36,632 (10,508) 26,124 So. California 11,439 (3,251) 8,188 Total Established 114,958 (34,966) 79,992 Other Stabilized 24,377 (8,242) 16,135 Development/Redevelopment (2) 14,252 (6,355) 7,897 Total from continuing operations $153,587 $(49,563) $104,024 (1) Represents direct property operating expenses, including property taxes. Amounts do not include property management and other indirect operating expenses. (2) Includes communities where development/redevelopment was completed in the fourth quarter of 2002, however stabilization was not achieved as of December 31, 2002. EBITDA is defined as net income before interest income and expense, income taxes, depreciation and amortization, from both continuing and discontinued operations. EBITDA excludes gain on sale of communities and impairment loss on planned dispositions. Management generally considers EBITDA to be an appropriate supplemental measure to net income of the operating performance of the Company because it helps investors to understand the ability of the Company to incur and service debt and to make capital expenditures. A reconciliation of EBITDA to net income is as follows (dollars in thousands): Q1 Q1 2003 2002 Net income $37,388 $40,721 Interest income (902) (1,132) Interest expense 34,369 27,351 Interest expense (disc. ops.) 195 192 Depreciation expense 37,971 32,151 Depreciation expense (disc. ops.) 304 1,782 Gain on sale of communities (14,072) -- EBITDA $95,253 $101,065 Projected EBITDA, as provided within this release for certain Development and Redevelopment Communities, represents management's estimate, as of the date of this release, of projected stabilized rental revenue minus projected stabilized operating expenses before interest, income taxes (if any), depreciation, amortization and extraordinary items. Projected stabilized rental revenue represents management's estimate of gross potential community- level earnings projected to be achieved for the first stabilized year following the completion of construction minus projected economic vacancy and adjusted for concessions. Projected EBITDA is calculated on a consistent basis as historical EBITDA, and is therefore considered to be an appropriate supplemental measure to projected net income of projected operating performance at the community level. However, due to the complexities of allocations of overhead and interest, net income is not projected on a community level basis, and therefore a reconciliation of Projected EBITDA to projected net income for these Development and Redevelopment Communities is not provided. Management uses its determination of Projected EBITDA to help measure the projected impact that a community under construction may have on Company-wide performance once such community is complete and achieves stabilization. Average Rent per Home, as calculated for certain Development and Redevelopment Communities in lease-up, reflects (a) actual average leased rents for those apartments leased through the end of the quarter net of amortized concessions and (b) estimated market rents net of comparable concessions for all unleased apartments. For Development and Redevelopment Communities not yet in lease-up, Average Rent per Home reflects management's projected rents, including concessions equal to one-half month rent. Market Rents as reported by the Company are based on the current market rates set by the managers of the Company's communities based on their experience in renting their communities' apartments and publicly available market data. Trends in market rents for a region as reported by others could vary. Market Rents for a period are based on the average Market Rents during that period and do not reflect any impact for cash concessions. Economic Occupancy is defined as total possible revenue less vacancy loss as a percentage of total possible revenue. Total possible revenue is determined by valuing occupied units at contract rates and vacant units at Market Rents. Vacancy loss is determined by valuing vacant units at current Market Rents. By measuring vacant apartments at their Market Rents, Economic Occupancy takes into account the fact that apartment homes of different sizes and locations within a community have different economic impacts on a community's gross revenue. Leverage is calculated by the Company as total debt as a percentage of total market capitalization. Market capitalization represents the aggregate of the market value of Company's common stock, the market value of the Company's operating partnership units outstanding, the liquidation preference of the Company's preferred stock and the outstanding principal balance of the Company's debt. Management believes that Leverage can be one useful measure of a real estate operating company's long term liquidity and balance sheet strength, because it shows an approximate relationship between a company's total debt and the current total market value of its assets based on the current price at which the company's common stock trades. Changes in Leverage also can influence changes in per share results. A calculation of Leverage as of March 31, 2003 is as follows (dollars in thousands): Leverage Total debt $2,583,371 Common stock 2,486,463 Preferred stock 183,415 Operating partnership units 36,006 Total debt 2,583,371 Total capitalization 5,289,255 Debt as % of capitalization 48.8% Unencumbered NOI is calculated by the Company as a measure of liquidity and represents NOI generated by real estate assets unencumbered by outstanding debt as a percentage of total NOI for the Company, including NOI from discontinued operations. A calculation of Unencumbered NOI for the first quarter of 2003 is as follows (dollars in thousands): Unencumbered NOI NOI as reported $103,504 NOI from discontinued operations 3,643 Total NOI 107,147 NOI on encumbered assets 21,652 NOI on unencumbered assets 85,495 Unencumbered NOI 79.8% Total Capital Cost includes all capitalized costs projected to be or actually incurred to develop the respective Development or Redevelopment Community, or Development Right, including land acquisition costs, construction costs, real estate taxes, capitalized interest and loan fees, permits, professional fees, allocated development overhead and other regulatory fees, all as determined in accordance with GAAP. With respect to communities where development or redevelopment was completed in a prior or the current period, Total Capital Cost reflects the actual cost incurred, plus any contingency estimate made by management. Stabilized/Restabilized Operations is defined as the earlier of (i) attainment of 95% physical occupancy or (ii) the one-year anniversary of completion of development or redevelopment. Non-Revenue Generating Capex represents capital expenditures that will not directly result in revenue earnings or expense savings. Initial Year Market Cap Rate, as determined within this release related to Disposed Communities, is defined as Projected EBITDA of a single community for the first 12 months following its disposition, less estimates for capital expenditures ($225 per apartment), divided by the gross sales price for the community. For this purpose, management's projection of stabilized operating expenses for the community include a management fee (3.5%). The Initial Year Market Cap Rate, which may be determined in a different manner by others, is a measure frequently used in the real estate industry when determining the appropriate purchase price for a property or estimating the value for the property. Among the reasons that the gross sales prices of different communities may result in different Initial Year Market Cap Rates is that the purchasers (i) may estimate different stabilized operating expenses for the community, including capital expenditure estimates and (ii) may project different future rental revenue results due to different estimates for changes in rent and occupancy levels.SOURCE AvalonBay Communities, Inc.
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CONTACT:
Bryce Blair, Chairman, Chief Executive
Officer and President, +1-703-317-4652, or Thomas J. Sargeant,
Executive Vice President and Chief Financial Officer,
+1-703-317-4635, both of AvalonBay Communities, Inc.
