AvalonBay Communities, Inc. Prices Public Offering of 3,200,000 Shares of Common Stock

Rhea-AI Summary

AvalonBay Communities (NYSE: AVB) has priced a public offering of 3,200,000 shares of common stock, expecting to raise approximately $710.4 million in gross proceeds. The company entered into forward sale agreements with major financial institutions, allowing it to set the price now but delay the issuance of shares and receipt of proceeds until closer to when funds are needed, up to December 31, 2025. AVB plans to use the net proceeds for land acquisitions, development and redevelopment of apartment communities, acquisitions, structured investments, and general corporate purposes. The offering, expected to close on September 9, 2024, includes a 30-day option for underwriters to purchase up to an additional 480,000 shares.

Positive

• Expected gross proceeds of approximately $710.4 million from the offering
• Flexibility in timing of share issuance and fund receipt through forward sale agreements
• Potential for additional capital through the 30-day option for 480,000 more shares
• Planned use of proceeds for growth-oriented activities like acquisitions and development

Negative

• Potential dilution of existing shareholders' ownership
• Delayed receipt of proceeds may impact immediate capital needs
• Possible market pressure on stock price due to increased share supply

Insights

Financial Analyst

AvalonBay's public offering of 3.2 million shares at an expected gross proceeds of $710.4 million is a significant move. The use of forward sale agreements is a strategic choice, allowing the company to lock in the current stock price while delaying the actual issuance. This approach provides flexibility in timing the capital influx, which is important given the intended use for land acquisitions, development and potential debt repayment.

The offering price implies approximately $222 per share, which is notably higher than the current market price. This premium suggests strong investor confidence in AvalonBay's future prospects. The company's ability to raise capital at this level indicates robust demand for multifamily REITs, despite recent market volatility.

The potential dilution effect is relatively modest, at about 2.3% of outstanding shares. However, investors should monitor how efficiently AvalonBay deploys this capital, as it will be key to offsetting the dilution and driving future growth.

Real Estate Market Analyst

This offering comes at a pivotal time for the multifamily real estate sector. With rising interest rates and economic uncertainties, AvalonBay's move to bolster its capital position is prudent. The company's focus on land acquisitions and development suggests a bullish outlook on the apartment market, despite near-term headwinds.

The structured investment program mentioned could indicate AvalonBay's intention to diversify its revenue streams, potentially through mezzanine lending or joint ventures. This strategy could provide higher yields in a challenging environment for traditional multifamily investments.

Investors should pay attention to AvalonBay's acquisition targets and development pipeline. The success of this capital raise will largely depend on the company's ability to identify and execute on high-quality opportunities in key markets, especially as competition for prime multifamily assets remains fierce.

Corporate Finance Expert

AvalonBay's decision to use forward sale agreements is a sophisticated financial maneuver. This structure allows the company to lock in equity financing at today's prices while deferring the actual issuance of shares for up to 15 months. This flexibility is particularly valuable in the current volatile market environment.

The company's mention of potentially using proceeds to repay commercial paper and revolving credit facilities suggests a focus on optimizing its capital structure. By replacing short-term, potentially higher-cost debt with equity, AvalonBay could improve its balance sheet metrics and reduce interest rate risk.

However, the success of this strategy hinges on AvalonBay's ability to generate returns on new investments that exceed the cost of this equity issuance. Investors should closely monitor the company's capital allocation decisions and the performance of newly acquired or developed properties in the coming quarters.

ARLINGTON, Va.--(BUSINESS WIRE)-- AVALONBAY COMMUNITIES, INC. (NYSE: AVB) (the “Company”) announced today that it has priced an underwritten public offering of 3,200,000 shares of common stock, all of which are being offered in connection with the forward sale agreements described below, for expected gross proceeds of approximately $710.4 million.

Goldman Sachs & Co. LLC, BofA Securities, Deutsche Bank Securities Inc. and Morgan Stanley are acting as joint book-running managers for the offering.

The Company has entered into forward sale agreements with Goldman Sachs & Co. LLC, Bank of America, N.A., Deutsche Bank AG, London Branch and Morgan Stanley & Co. LLC or their affiliates (the “forward purchasers”) with respect to 3,200,000 shares of its common stock. In connection with the forward sale agreements, the forward purchasers or their affiliates are expected to borrow and sell to the underwriters an aggregate of 3,200,000 shares of the common stock that will be delivered in the offering. Subject to its right to elect cash or net share settlement, which right is subject to certain conditions, the Company intends to deliver, upon physical settlement of such forward sale agreements on one or more dates specified by the Company occurring no later than December 31, 2025, an aggregate of 3,200,000 shares of its common stock to the forward purchasers in exchange for cash proceeds per share equal to the applicable forward sale price, subject to certain adjustments as provided in the forward sale agreements.

The Company has granted the underwriters a 30-day option to purchase up to an additional 480,000 shares of common stock. If the underwriters exercise such option, the Company expects to enter into additional forward sale agreements with the forward purchasers in respect of the number of shares sold by the forward purchasers (or their respective affiliates) in connection with the exercise of such option.

The offering is expected to close on September 9, 2024, subject to customary closing conditions.

The Company will not initially receive any proceeds from the sale of shares of its common stock by the forward purchasers or their affiliates in the offering. The Company intends to use the net proceeds, if any, it receives upon the future settlement of the forward sale agreements for identified and prospective land acquisitions, the development and redevelopment of apartment communities, the acquisition of communities, funding of its structured investment program investments, and working capital and general corporate purposes. General corporate purposes may include the repayment of outstanding indebtedness, including borrowings under the Company’s commercial paper program, which allows the Company to issue, from time to time, unsecured commercial paper notes with varying maturities of less than one year up to a maximum amount outstanding at any one time of $500 million, or its $2.25 billion revolving variable rate unsecured credit facility, and the repayment and refinancing of other indebtedness. Pending the application of such net proceeds, the Company may temporarily invest all or a portion of the net proceeds from the offering in cash or cash equivalents and/or hold such proceeds in accordance with its internal liquidity policy.

Selling common stock through the forward sale agreements enables the Company to set the price of such shares upon the pricing of the offering (subject to certain adjustments) while delaying the issuance of such shares and the receipt of the net proceeds by the Company until a time closer to the funding requirements described above.

The offering is being conducted pursuant to the Company’s currently effective shelf registration statement, which was previously filed with the Securities and Exchange Commission (the “SEC”). This press release does not constitute an offer to sell or the solicitation of an offer to buy any of the Company’s securities, nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state.

You may obtain copies of the prospectus supplement and prospectus relating to the offering without charge from the SEC at www.sec.gov. Alternatively, copies of these documents may be obtained by contacting (i) Goldman Sachs & Co. LLC, Prospectus Department, 200 West Street, New York, NY 10282, telephone: 1-866-471-2526, facsimile: 212-902-9316 or by email at Prospectus-ny@ny.email.gs.com; (ii) BofA Securities, NC1-022-02-25, 201 North Tryon Street, Charlotte, North Carolina 28255-0001, Attention: Prospectus Department or by email at dg.prospectus_requests@bofa.com; (iii) Deutsche Bank Securities Inc., Attention: Prospectus Department, at 1 Columbus Circle, New York, NY 10019, by telephone at (800) 503-4611 or by email at Prospectus.Ops@db.com; and (iv) Morgan Stanley & Co. LLC, Attention: Prospectus Department, 180 Varick Street, 2nd Floor, New York, NY 10014, or email: prospectus@morganstanley.com.

Forward-Looking Statements

This release contains forward-looking statements within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which include, but are not limited to, statements related to the intended use of the net proceeds from the offering and the date of the closing of the offering. The Company intends these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and is including this statement for purposes of complying with those safe harbor provisions, in each case, to the extent applicable. The Company cautions investors that any such forward-looking statements are based on current beliefs or expectations of future events and on assumptions made by, and information currently available to, management. You can identify forward-looking statements by the use of the words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “assume,” “project,” “plan,” “may,” “shall,” “will,” “pursue” and other similar expressions in this press release, that predict or indicate future events and trends and that do not report historical matters. Such forward-looking statements are subject to various risks and uncertainties, including, among others, the availability of debt and equity financing; and the trends affecting the Company’s financial condition or results of operations. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are described under the sections entitled “Forward-Looking Statements” and “Risk Factors” in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, as such factors may be updated from time to time in the Company’s periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. The forward-looking statements speak only as of the date of this press release, and the Company expressly disclaims any obligation or undertaking to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except to the extent otherwise required by law.

About AvalonBay Communities, Inc.

AvalonBay Communities, Inc., a member of the S&P 500, is an equity REIT in the business of developing, redeveloping, acquiring and managing apartment communities in leading metropolitan areas in New England, the New York/New Jersey Metro area, the Mid-Atlantic, the Pacific Northwest, and Northern and Southern California, as well as in the Company's expansion regions of Raleigh-Durham and Charlotte, North Carolina, Southeast Florida, Dallas and Austin, Texas, and Denver, Colorado. As of June 30, 2024, the Company owned or held a direct or indirect ownership interest in 300 apartment communities containing 91,399 apartment homes in 12 states and the District of Columbia, of which 17 communities were under development.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240905684529/en/

Jason Reilley

Vice President

Investor Relations

AvalonBay Communities, Inc.

703-317-4681

Source: AvalonBay Communities, Inc.

FAQ

How many shares is AvalonBay Communities (AVB) offering in its public offering?

AvalonBay Communities (AVB) is offering 3,200,000 shares of common stock in its public offering.

What is the expected gross proceeds from AVB's stock offering?

The expected gross proceeds from AvalonBay Communities' stock offering are approximately $710.4 million.

When is the closing date for AvalonBay Communities' (AVB) public offering?

The public offering by AvalonBay Communities (AVB) is expected to close on September 9, 2024, subject to customary closing conditions.

What are the intended uses for the proceeds from AVB's stock offering?

AvalonBay Communities (AVB) intends to use the proceeds for land acquisitions, development and redevelopment of apartment communities, acquisitions, structured investments, working capital, and general corporate purposes, including potential debt repayment.

What is the latest date for AvalonBay Communities (AVB) to settle the forward sale agreements?

AvalonBay Communities (AVB) has until December 31, 2025, as the latest date to settle the forward sale agreements.