U.S. markets closed
  • S&P 500

    4,280.15
    +72.88 (+1.73%)
     
  • Dow 30

    33,761.05
    +424.38 (+1.27%)
     
  • Nasdaq

    13,047.19
    +267.27 (+2.09%)
     
  • Russell 2000

    2,016.62
    +41.36 (+2.09%)
     
  • Crude Oil

    91.88
    -2.46 (-2.61%)
     
  • Gold

    1,818.90
    +11.70 (+0.65%)
     
  • Silver

    20.83
    +0.49 (+2.39%)
     
  • EUR/USD

    1.0257
    -0.0068 (-0.66%)
     
  • 10-Yr Bond

    2.8490
    -0.0390 (-1.35%)
     
  • GBP/USD

    1.2139
    -0.0064 (-0.52%)
     
  • USD/JPY

    133.4800
    +0.4810 (+0.36%)
     
  • BTC-USD

    24,488.03
    +489.44 (+2.04%)
     
  • CMC Crypto 200

    574.64
    +3.36 (+0.59%)
     
  • FTSE 100

    7,500.89
    +34.98 (+0.47%)
     
  • Nikkei 225

    28,546.98
    +727.65 (+2.62%)
     

AvalonBay Communities, Inc. -- Moody's Assigns a Prime-2 to AvalonBay's $500 million commercial paper program; outlook stable

·17 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Rating Action: Moody's Assigns a Prime-2 to AvalonBay's $500 million commercial paper program; outlook stableGlobal Credit Research - 15 Mar 2022New York, March 15, 2022 -- Moody's Investors Service ("Moody's") has assigned a Prime-2 (P-2) short-term rating to AvalonBay Communities, Inc.'s ("AvalonBay" or "AVB") $500 million unsecured commercial paper (CP) program in the US. Concurrently, Moody's also affirmed the REIT's existing ratings, including its A3 senior unsecured rating.The affirmation reflects the REIT's low-leveraged balance sheet and flexible capital structure, supported by its strong liquidity, broad access to capital and a resilient operating performance from its large, high-quality multifamily property portfolio. The rating outlook remains stable.The following ratings were affirmed:Issuer: AvalonBay Communities, Inc.Senior unsecured debt, Affirmed A3Senior unsecured MTN, Affirmed (P) A3Senior unsecured shelf, Affirmed (P) A3Subordinate shelf, Affirmed (P) Baa1Preferred shelf, Affirmed (P) Baa1Preferred shelf Non-cumulative, Affirmed (P) Baa1The following ratings were assigned:Issuer: AvalonBay Communities, Inc.unsecured commercial paper (CP) program, Assigned P-2Outlook Actions:Issuer: AvalonBay Communities, Inc.- Outlook, remains stableRATINGS RATIOANLEThe new P-2 short-term rating was assigned in connection to the REIT's announcement of the establishment of its first-time unsecured CP Program. AvalonBay Communities, Inc. will issue the CP notes, which will rank pari passu in the right of payment with all of its other unsubordinated and unsecured senior debt obligations. As an alternative source of funding, the REIT may issue unsecured CP notes of up to a maximum aggregate amount outstanding of $500 million, which currently equates to approximately 6% of the total outstanding principal debt and amortization as of year-end 2021. Intended for general corporate purposes, borrowings are expected to average approximately $250 million while the firm builds up CP demand and liquidity. The firm will use its $1.75 billion revolving credit facility ("revolver") as a liquidity backstop for the repayment of the unsecured short-term debt securities issued under the CP Program. Maturing in February 2024, the revolver has same-day funding availability.Other key factors considered in the rating include the REIT's large unencumbered asset base, representing approximately 94% of gross assets at year-end 2021, and its historically low utilization rate of the revolver. The REIT has primarily funded itself with a combination of unrestricted cash, Funds from Operations (FFO) as well as net proceeds from asset sales, capital market transactions and some joint ventures. Additionally, the REIT has the optionality to pay up to 90% of dividends with stock, potentially allowing for management to reallocate unrestricted cash and FFO to fully or partially cover the outstanding CP borrowings as a secondary back-up to the revolver, not including net proceeds from asset sales. Overall, Moody's expects that AvalonBay will continue to maintain its strong liquidity position, robust access to capital and strong financial flexibility.The A3 senior unsecured rating reflects AVB's position and scale as one of the leading, premier public apartment owners/operators in the US, supported by a strong balance sheet and high-quality portfolio. The same property portfolio performance has proved resilient since the onset of the COVID-19 pandemic and is benefiting from a faster than expected recovery due to improving fundamentals, including a rebound in tenant demand, rising market rents and high rental revenue collections rates. These credit strengths are partially offset by: 1) lingering pockets of softened demand in its core markets; 2) the pending full recovery of major urban markets, in which the REIT has one third of its portfolio; and 3) sector-wide regulatory policies (eviction moratoria, landlord-tenant regulations, rental caps) in some markets that impede revenue growth or rent collections.The balance sheet remains defensively positioned with total debt to gross assets and net debt plus preferred stock to EBITDA (Moody's adjusted) at 32% and 5.5x for the trailing twelve months ended December 31. Further, secured debt levels reached a historical low of 2.9% of gross assets, reflecting the company's profile as a long-term unsecured borrower. AVB benefits from having one of the lowest debt cost of capital among its sector peers. The debt capital structure consists primarily of fixed-rate obligations, representing approximately 91% of total debt, and a weighted average debt duration of 8.8 years. Since the trough at year-end 2020 due to the pandemic, AVB's operating performance trends have improved year-over-year and quarter over quarter sequentially with same property revenues and same property net operating income (NOI) rising by approximately 5% and 6.8% in the fourth quarter of 2021 over the same period in the prior year. Same property effective move-in rents, net of concessions, rose 8.7% above October 2019 levels in 2021 and rose approximately 23% between January 2021 and January 2022. All of AVB's core regions, except Northern California, experienced stronger performance during 2021 in both its suburban and urban communities. For 2022, the same-store revenue and NOI are expected to grow by 8.25% and 10% (midpoint of guidance range), respectively.At fourth quarter-end 2021, the REIT had $544 million of unrestricted cash and escrowed cash held for lenders along with full borrowing capacity under the $1.75 billion revolver. Complementing the approximate $2.0 billion of proceeds raised from a combination of asset sales, bond offerings and ATM activity during the year, the REIT generated approximately $1.1 billion of FFO (Moody's adjusted) in 2021. Given its broad access to capital, the firm's near-term debt maturities are considered manageable with $717 million, or 8.8% of total debt, scheduled to mature between 2022 and 2023, of which $100 million already came due in February 2022.The stable outlook reflects our expectation that AVB will continue to grow in a disciplined manner while maintaining its strong leverage profile as well as its operational and financial flexibility to adjust to changes through various market cycles.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSAlthough upward rating movement is unlikely in the near-term, it would be predicated on AvalonBay achieving the following criteria on a sustained basis:1) gross assets approaching $30 billion with no deterioration in portfolio quality; 2) total debt plus preferred stock below 30% of gross assets; 3) net debt plus preferred stock to EBITDA significantly below 5.0x; 4) maintain a strong liquidity position; and 5) a development pipeline that is both substantially match funded and below 10% of gross assets.Downward rating pressure would result from the following on a sustained basis:1) total debt plus preferred stock approaching 40% of gross assets; 2) net debt plus preferred stock to EBITDA above 6.0x; 3) secured debt above 15% of gross assets; 4) fixed charge coverage ratio approaching 3.5x; 5) an underfunded development pipeline that is above 15% of gross assets; and 6) a material weakness in operating results.Headquartered in Arlington, Virginia, AvalonBay Communities, Inc. [NYSE: AVB] owns, acquires, develops, redevelops and manages premier apartment communities located in select high barrier-to-entry suburban and urban markets. Including 20 properties that are under development/redevelopment, as of year-end 2021, the REIT owned or held direct or indirect investments in 297 operating apartment communities, comprising approximately 87,992 apartments in 12 states and the District of Columbia.The principal methodology used in these ratings was REITs and Other Commercial Real Estate Firms Methodology published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1272320. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Juan Acosta Asst Vice President - Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Philip Kibel Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements. ​