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AvalonBay (AVB) Procures Capital With $600M Note Offering

Zacks Equity Research
·4 min read

AvalonBay Communities, Inc. AVB completed a $600-million unsecured note offering priced at 99.55%. The medium-term notes are set to mature on Jan 15, 2031, and will pay semi-annually on Jan 15 and Jul 15, with the first payment scheduled to be made on Jul 15, 2020.

The 2.450% notes carry an effective interest rate of 2.646%, inclusive of prior interest rate hedge and offering cost impact.

Net proceeds from the offering were $592.4 million and were used to redeem its $300-million floating rate notes due in 2021. The redemption date for the notes was May 23, 2020. The company expects to use the remaining proceeds for general corporate purposes, including buyouts, development and redevelopment of apartment communities. Moreover, it intends to repay and refinance other debt obligations, including outstanding balance under its $1.75-billion unsecured revolving credit facility.

Post these transactions, the apartment REIT will have roughly $100 million of debt maturities and amortization (excluding bond redemptions from prior funded principal reserve accounts) remaining before 2022. This comprises of around $70 million and $30 million of secured debt maturities and amortization in 2020 and 2021.

AvalonBay’s efforts to strengthen its liquidity in these testing times and tap the debt market amid a low interest-rate environment are a strategic fit.

Notably, with $1.8 billion of liquidity, including the remaining line of credit capacity and cash on hand as of the first-quarter end, the company has a healthy balance sheet and ample liquidity.

Specifically, the coronavirus pandemic has been wreaking havoc, and resulting in macroeconomic uncertainty and a choppy job-market environment. This is likely to affect demand in the prime leasing season. Moreover, amid the situation, the rent-paying capability of tenants is likely to get maimed.

Amid the pandemic-led headwinds, the company adopted a number of measures, including offering flexible lease renewal options at no rent hike for leases expiring through Jun 30, 2020, making payment plans for residents who are unable to pay their rent because of the crisis, and waiving late fees and some other customary fees associated with apartment rentals. As such, AvalonBay’s top line is likely to bear the brunt in the near term, with an adverse impact on rental rates and occupancy.

Notably, the company’s first-quarter 2020 core funds from operation (FFO) per share of $2.39 missed the Zacks Consensus Estimate of $2.40.

Over the past year, shares of this Zacks Rank #3 (Hold) company have lost 21.8% as compared with the industry’s decline of 16.8%.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


Better-Ranked Stocks to Consider

BRT Realty Trust’s BRT Zacks Consensus Estimate for 2020 FFO per share remained unchanged at 93 cents over the past month. The company currently carries a Zacks Rank of 2 (Buy).

Bluerock Residential Growth REIT, Inc.’s BRG FFO per share estimate for 2020 has remained unrevised at 84 cents over the past month. Further, it currently carries a Zacks Rank of 2.

Office Properties Income Trust’s OPI FFO per share estimate for the ongoing year was revised marginally upward to $5.30 over the past 30 days. Additionally, it carries a Zacks Rank of 2 at present.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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