In order to pay off its outstanding debts,
AvalonBay Communities Inc.
) is raising capital through notes issuance. In particular, the
company priced 4.200% unsecured notes worth $350 million at
99.806% of the principal amount.
Specifically, this apartment real estate investment trust
(REIT) intends to utilize a part of the proceeds to pay off
outstanding debt under its three secured debt financings
facilities. The facilities have total outstanding balance of
around $302.0 million, which is payable to
Also, AvalonBay will incur prepayment penalties of about $14.9
million related to this. The remaining amount will be used to
fulfill other corporate needs such as acquisition, development
and redevelopment of apartment assets and payback and refinance
However, the prepayment penalty would adversely impact the
company's fourth quarter and full year 2013 results. In
particular, the company expects the fourth-quarter and full-year
2013 funds from operations (FFO) per share figures to decline by
12 cents and 13 cents, respectively.
Despite the negative impact on FFO for this notes issuance,
the shares have gained on positive broader market sentiments.
Shares of AvalonBay increased 0.89% during the regular trading
session on Dec 6.
The unsecured notes will mature on Dec 15, 2023 and have a
yield to maturity of 4.224%. Notably, the settlement is slated to
complete by Dec 16, 2013. As a matter of fact, J.P. Morgan
Securities LLC of
JPMorgan Chase & Co.
), BofA Merrill Lynch of
Bank of America Corporation
) and Barclays Capital Inc. supported AvalonBay in this offering
as lead representatives of the agents.
As of Sep 30, 2013, AvalonBay had nearly $211.3 million in
unrestricted cash and cash in escrow. Although, the notes
offering will affect AvalonBay's near-term earnings, we believe
that the above-mentioned transaction is a strategic fit as it
will lower interest expenses. Moreover, increased financial
flexibility will enable AvalonBay to pursue strong portfolio
restructuring activity that will go a long way in enhancing its
AvalonBay currently carries a Zacks Rank #3 (Hold).
Note: FFO, a widely used metric to gauge the performance of
REITs, is obtained after adding depreciation and amortization
and other non-cash expenses to net income.
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