AvalonBay Surpasses Estimates

Zacks

AvalonBay Communities Inc. (AVB), a leading multifamily real estate investment trust (:REIT), reported fiscal 2012 first quarter funds from operations (:FFO) of $122.0 million or $1.28 per share, compared with $93.5 million or $1.08 in the year-earlier quarter. Funds from operations, 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.

Excluding certain non-recurring items, FFO for the reported quarter was $1.29 per share. The recurring FFO for first quarter 2012 exceeded the Zacks Consensus Estimate by 5 cents. Total revenues during the reported quarter increased 7.9% year-over-year to $254.5 million and exceeded the Zacks Consensus Estimate of $253 million.

Same-store quarterly rental revenues increased 6.6% year-over-year due to a 6.4% rise in average rental rates. Economic occupancy increased 0.2% on a year-over-year basis to 96.2%. Same-store operating expenses decreased 1.1% during the quarter compared with the year-ago period, while NOI (net operating income) increased 10.2% year-over-year.

AvalonBay started a new development project during the quarter. Spanning 531 apartment homes, this new project (‘Avalon Mosaic’) is located in Tysons Corner, Virginia, and is estimated to cost $120.9 million when fully completed. The company also completed the redevelopment of two communities during the quarter for a total cost of $32.5 million.

During the quarter, AvalonBay Value Added Fund, L.P., a private discretionary real estate investment vehicle in which the company holds an equity interest of approximately 15%, sold 2 communities in Chicago, Illinois, for a GAAP profit of $1.1 million. These included the sale of ‘Avalon Lakeside’ (204 apartment homes) for $20.5 million and ‘Avalon Poplar Creek’ (196 apartment homes) for $27.2 million.

During the reported quarter, the company acquired ‘The Mark Pasadena’ – an 84 apartment home community in Pasadena, California, for $19.4 million. In addition, AvalonBay Value Added Fund II, L.P., a private discretionary real estate investment vehicle in which the company holds an equity interest of approximately 31%, acquired ‘Avalon Watchung’ – a 334 apartment home community in Watchung, New Jersey, for $63.0 million.

As of March 31, 2012, AvalonBay had $321.1 million of unrestricted cash and cash in escrow and a total debt of $3.4 billion. In addition, the company had full availability under its $750 million unsecured credit facility.

During the first quarter of 2012, AvalonBay repaid $179.4 million worth of the principal amount of its 5.5% coupon unsecured notes. The company also repaid a variable rate secured mortgage note at par, totaling $48.5 million in advance of its scheduled maturity in November 2039.

AvalonBay reported better-than-expected results during first quarter 2012, driven by higher rental demand as new supply remained muted. With apartment vacancies remaining at an 11-year low at 4.9% in first quarter 2012, AvalonBay expects FFO for second quarter 2012 in the range of $1.30 to $1.34.

We maintain our long-term Neutral rating on AvalonBay, which presently has a Zacks #3 Rank that translates into a short-term Hold recommendation. We also have a Neutral recommendation and a Zacks #3 Rank for Apartment Investment & Management Co. (AIV), one of the competitors of AvalonBay.

Read the Full Research Report on AVB

Read the Full Research Report on AIV

Zacks Investment Research



More From Zacks.com
View Comments