Avalonbay Communities, Inc. · NYSE:AVB
Avalonbay Communities — Q4 2023 Earnings Presentation
34 slides from Avalonbay Communities's earnings presentation, Feb 1, 2024
Slide 1: Investor Teleconference Presentation Fourth Quarter 2023
Avalon Princeton Circle Princeton, NJ AVA Esterra Park INVESTOR TELECONFERENCE PRESENTATION Redmond, WA Fourth Quarter 2023 February 1, 2024 1 Avalon Chino Hills Chino Hills, CA
Slide 2: Forward-looking statements and non-GAAP reference
See Appendix for information about forward-looking statements and definitions and reconciliations of non-GAAP financial measures and other terms. For the reasons described in the referenced forward-looking statements, our historical results may not be indicative of future results. 2
Slide 3: Participants
PARTICIPANTS BEN SCHALL CHIEF EXECUTIVE OFFICER & PRESIDENT KEVIN O’SHEA CHIEF FINANCIAL OFFICER MATT BIRENBAUM CHIEF INVESTMENT OFFICER SEAN BRESLIN CHIEF OPERATING OFFICER 3
Slide 4: Review of Fourth Quarter and Full Year 2023 Results and Activity
2023 Review REVIEW OF FOURTH QUARTER AND FULL YEAR 2023 RESULTS AND ACTIVITY Q4 | FULL YEAR 2023 RESULTS AND ACTIVITY Q4 FULL YEAR CORE FFO PER SHARE YEAR-OVER-YEAR GROWTH 5.8% 8.6% SAME STORE RESIDENTIAL RENTAL REVENUE YEAR-OVER-YEAR GROWTH 4.5% 6.3% DEVELOPMENT COMPLETIONS | WTD. AVG. INITIAL PROJ
Slide 5: Innovation efforts delivered approximately $19 million of incremental NOI
2023 Review INNOVATION EFFORTS DELIVERED ≈ $ 19 MILLION OF INCREMENTAL NOI OVER THE COURSE OF THE YEAR, EXCEEDING INITIAL EXPECTATION BY ≈ $ 7 MILLION COMPONENTS OF 2023 INCREMENTAL NOI AVALON CONNECT (1) FURNISHED HOUSING LABOR EFFICIENCIES RELIABLE, HIGH-SPEED ON-DEMAND FURNISHED DIGITAL, SELF-SER
Slide 6: Continued to rotate capital to expansion regions; doubled SIP commitments
2023 Review CONTINUED TO ROTATE CAPITAL TO EXPANSION REGIONS IN 2023; MORE THAN DOUBLED SIP COMMITMENTS SELECT 2023 CAPITAL ALLOCATION ACTIVITIES SIP PROGRAM STATUS AS OF DECEMBER 31, 2023 $ 400 WTD. AVG. RATE OF RETURN 11.5% TOTAL MILLIONS $ 192M $ 200 $ 400M AVB ESTABLISHED REGION TOTAL AVB EXPANS
Slide 7: Liquidity and balance sheet position remain robust
2023 Review LIQUIDITY AND BALANCE SHEET POSITION REMAIN ROBUST EXCESS LIQUIDITY AS OF DECEMBER 31, 2023 $3 4.2x 7.7x NET DEBT-TO-CORE INTEREST COVERAGE EBITDAre OPEN AVAILABLE $2 COMMITMENTS, COMMERCIAL $ 1.3B PAPER 95% 7.7 BILLIONS PROGRAM & LINE OF UNENCUMBERED NOI WTD. AVG. CREDIT (FULL YEAR 2023
Slide 8: 2024 Strategic Focus Areas
2024 Outlook 2024 STRATEGIC FOCUS AREAS ➢ ADVANCE OPERATING MODEL TRANSFORMATION BY DRIVING EFFICIENCY AND INCREMENTAL REVENUE ➢ LEVERAGE DEVELOPMENT CAPABILITIES TO CONTINUE TO DRIVE DIFFERENTIATED GROWTH, WHILE INCREASING SIP COMMITMENTS ➢ OPTIMIZE PORTFOLIO BY INCREASING ALLOCATION TO SUBURBAN SU
Slide 9: Housing demand projected to moderate in 2024
2024 Outlook HOUSING DEMAND IS PROJECTED TO MODERATE IN 2024, BUT RENTAL FUNDAMENTALS CONTINUE TO SCREEN FAVORABLY IN AVB ESTABLISHED REGIONS SLOWER JOB GROWTH …BUT RENTAL DEMAND IN AVB ESTABLISHED REGIONS SHOULD IS PROJECTED TO TEMPER HOUSING DEMAND… BENEFIT FROM AN EXPENSIVE FOR-SALE HOUSING ALTER
Slide 10: Favorable supply outlook for AVB established regions through 2025
2024 Outlook FAVORABLE SUPPLY OUTLOOK FOR AVB ESTABLISHED REGIONS EXPECTED TO PERSIST THROUGH 2025 PROJECTED NEW MARKET RATE APARTMENT DELIVERIES AS A % OF EXISTING MARKET RATE APARTMENT INVENTORY 4% 3.4% 2.7% 2% 2.3% 1.9% 1.6% 1.4% - U.S. AVB ESTABLISHED SUNBELT U.S. AVB ESTABLISHED SUNBELT REGIONS
Slide 11: Full Year 2024 Outlook Summary
2024 Outlook FULL YEAR 2024 OUTLOOK SUMMARY 2024 OUTLOOK(1) FULL YEAR PROJECTED CORE FFO PER SHARE GROWTH AT THE MIDPOINT OF THE OUTLOOK RANGE 1.4% SAME STORE COMMUNITIES (RESIDENTIAL ONLY) RENTAL REVENUE GROWTH 2.6% OPERATING EXPENSE GROWTH 5.6% NOI GROWTH 1.25% DEVELOPMENT ACTIVITY TOTAL CAPITAL C
Slide 12: Projected Core FFO per share growth drivers
2024 Outlook PROJECTED CORE FFO PER SHARE GROWTH DRIVERS PARTIALLY OFFSET BY HIGHER COST OF CAPITAL MARKETS ACTIVITIES COMPONENTS OF 2024 FULL YEAR PROJECTED CORE FFO PER SHARE GROWTH BASED ON THE MIDPOINT OF OUTLOOK RANGE $ 11.23 IMPACT OF 2023 EQUITY FORWARD SETTLEMENT(2) LOWER INTEREST INCOME - $
Slide 13: 2024 same store revenue growth drivers
2024 Outlook 2024 SAME STORE REVENUE GROWTH ANTICIPATED TO BE DRIVEN BY LEASE RATES, OTHER RENTAL REVENUE, AND LOWER UNCOLLECTIBLE LEASE REVENUE COMPONENTS OF 2024 FULL YEAR PROJECTED SAME STORE RESIDENTIAL RENTAL REVENUE GROWTH BASED ON THE MIDPOINT OF OUTLOOK RANGE PROJECTED 2024 QUARTERLY SAME ST
Slide 14: Same store revenue growth stronger in established regions than expansion regions
2024 Outlook SAME STORE REVENUE GROWTH PROJECTED TO BE STRONGER IN ESTABLISHED REGIONS THAN EXPANSION REGIONS IN 2024 PROJECTED 2024 FULL YEAR SAME STORE RESIDENTIAL RENTAL REVENUE GROWTH BY REGION 6% MIDPOINT OF ESTABLISHED REGIONS MIDPOINT OF EXPANSION REGIONS ≈ 2.7% ≈ 1.1% HIGH-END 3.6% 3% LOW-EN
Slide 15: Incremental NOI delivered and expected in 2024
DELIVERED ≈ $ 27 MILLION OF INCREMENTAL NOI THROUGH YEAR-END 2023, EXPECTING ≈ $ 9 MILLION OF INCREMENTAL NOI IN 2024 $ 80M INCREMENTAL NOI TARGET(1) 2024 PRIORITIES AVALON CONNECT NEIGHBORHOOD STAFFING MODEL TOTAL $ 80M 80 HORIZON 2 EXPAND BULK INTERNET INCREASE DEPLOYMENT OF $ 25M AND SMART ACCESS
Slide 16: Same store operating expense growth driven by operating initiatives
2024 Outlook ≈ 30% OF PROJECTED 2024 SAME STORE RESIDENTIAL OPERATING EXPENSE GROWTH EXPECTED TO BE DRIVEN BY PROFITABLE OPERATING INITIATIVES COMPONENTS OF 2024 FULL YEAR PROJECTED SAME STORE RESIDENTIAL OPERATING EXPENSE GROWTH BASED ON THE MIDPOINT OF OUTLOOK RANGE PROJECTED 2024 QUARTERLY SAME S
Slide 17: Projecting accretive investment activity in 2024 across multiple platforms
2024 Outlook PROJECTING ACCRETIVE INVESTMENT ACTIVITY IN 2024 ACROSS MULTIPLE PLATFORMS, WHILE PRESERVING FLEXIBILITY TO ADJUST TO MARKET CONDITIONS ➢ ≈ $ 870 MILLION OF NEW STARTS DEVELOPMENT → MID-6% WTD. AVG. PROJECTED INITIAL STABILIZED YIELD STARTS → ≈ 90% OF STARTS IN SUBURBAN SUBMARKETS; ≈ 33
Slide 18: Current lease-ups exceeding expectations
2024 Outlook CURRENT LEASE-UPS EXCEEDING EXPECTATIONS, ANOTHER ≈ $ 855 MILLION ENTERING LEASE-UP IN 2024 PROJECTED TO BENEFIT FROM MARK-TO-MARKET PROJECTED PERFORMANCE PROJECTED VERSUS INITIAL EXPECTATIONS LEASE-UP SUMMARY(1) TOTAL WTD. AVG. WTD. AVG. CAPITAL COST MONTHLY RENTAL PROJECTED INITIAL RE
Slide 19: Key Takeaways
Key Takeaways KEY TAKEAWAYS ➢ DELIVERED STRONG FINANCIAL AND OPERATING RESULTS IN 2023 → CORE FFO PER SHARE 8.6%; SAME STORE RESIDENTIAL RENTAL REVENUE AND NOI EACH > 6% ➢ MEANINGFUL PROGRESS ON KEY STRATEGIC FOCUS AREAS DURING THE YEAR → INNOVATION EFFORTS GENERATED ≈ $ 19 MILLION OF INCREMENTA
Slide 20: Forward-Looking Statements
FORWARD-LOOKING STATEMENTS ➢ This presentation dated January 31, 2024 is provided in connection with AvalonBay’s fourth quarter 2023 earnings conference call on February 1, 2024. This presentation is intended to accompany AvalonBay’s earnings release dated January 31, 2024 and should be read in conj
Slide 21: Definitions and Reconciliations of Non-GAAP Financial Measures and Other Terms
DEFINITIONS AND RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES AND OTHER TERMS Asset Preservation Capex represents capital expenditures that the Company does not expect will directly result in increased revenue or expense savings. AVB Established Regions include markets located in New England, the N
Slide 22: Definitions and Reconciliations: EBITDAre
DEFINITIONS AND RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES AND OTHER TERMS Q4 2023 Net income $ 242,066 Interest expense and loss on extinguishment of debt 58,515 Income tax expense 2,438 Depreciation expense 210,694 EBITDA $ 513,713 Casualty loss 568 Gain on sale of communities (77,994) Unconso
Slide 23: Definitions and Reconciliations of Non-GAAP Financial Measures and Other Terms
DEFINITIONS AND RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES AND OTHER TERMS Economic Occupancy is defined as total possible Residential revenue less vacancy loss as a percentage of total possible Residential revenue. Total possible Residential revenue (also known as “gross potential”) is determin
Slide 24: Definitions and Reconciliations: FFO and Core FFO
DEFINITIONS AND RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES AND OTHER TERMS Q4 Q4 FULL YEAR FULL YEAR 2023 2022 2023 2022 Net income attributable to common stockholders $ 241,969 $ 241,293 $ 928,825 $ 1,136,775 Depreciation - real estate assets, including joint venture adjustments 209,694 205,977
Slide 25: Definitions and Reconciliations: footnotes
DEFINITIONS AND RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES AND OTHER TERMS (1) Amounts consist primarily of net unrealized gains on technology investments. (2) Amounts for 2023 and 2022 are for the Company's recognition of its promoted interest in the Archstone Multifamily Partners AC LP. (3) Am
Slide 26: Definitions and Reconciliations: Market Rents, Match-Funded
DEFINITIONS AND RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES AND OTHER TERMS Market Rents as reported by the Company are based on the current market rates set by the Company based on its experience in renting apartments and publicly available market data. Market Rents for a period are based on the
Slide 27: Definitions and Reconciliations: Net Debt-to-Core EBITDAre
DEFINITIONS AND RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES AND OTHER TERMS Total debt principal (1) $ 8,044,042 Cash and cash equivalents and restricted cash (493,935) Net debt $ 7,550,107 Core EBITDAre $ 452,724 Core EBITDAre, annualized $ 1,810,896 Net Debt-to-Core EBITDAre 4.2x (1) Balance at
Slide 28: Definitions and Reconciliations: NOI
DEFINITIONS AND RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES AND OTHER TERMS NOI is defined by the Company as total property revenue less direct property operating expenses (including property taxes), and excluding corporate-level income (including management, development and other fees), corporat
Slide 29: Definitions and Reconciliations: Projected FFO and Core FFO
DEFINITIONS AND RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES AND OTHER TERMS Projected FFO and Projected Core FFO, as provided within this presentation in the Company’s outlook, are calculated on a basis consistent with historical FFO and Core FFO, and are therefore considered to be appropriate su
Slide 30: Definitions and Reconciliations: Projected NOI
DEFINITIONS AND RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES AND OTHER TERMS Projected NOI, as used within this presentation for certain Development communities, represents management’s estimate, as of the date of this presentation, of projected stabilized rental revenue minus projected stabilized
Slide 31: Definitions and Reconciliations: Cash from operations available for investment
DEFINITIONS AND RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES AND OTHER TERMS Q4 2023 cash from operations available for investment, annualized is the Company’s fourth quarter 2023 Core FFO, less (i) fourth quarter 2023 dividends declared – common and (ii) fourth quarter 2023 Asset Preservation Cap
Slide 32: Definitions and Reconciliations: Stabilized Operations, Total Capital Cost
DEFINITIONS AND RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES AND OTHER TERMS Stabilized Operations is defined as operations of a community that occur after the earlier of (i) attainment of 90% physical occupancy or (ii) the one-year anniversary of completion of development or redevelopment. Suburb
Slide 33: Definitions and Reconciliations: Unencumbered NOI
DEFINITIONS AND RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES AND OTHER TERMS Unencumbered NOI as calculated by the Company represents NOI generated by real estate assets unencumbered by outstanding secured notes payable as of December 31, 2023 as a percentage of total NOI generated by real estate
Slide 34: AvalonBay Communities
AvalonBay COMMUNITIES
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