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AvalonBay (AVB) Q3 FFO Beat Reflects Growth in Rental Rates

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AvalonBay (AVB) Q3 FFO Beat Reflects Growth in Rental Rates

AvalonBay Communities' (AVB) Q3 results highlight growth in revenues from stabilized operating communities and development communities.

AvalonBay Communities, Inc.’s AVB third-quarter 2018 core funds from operations (FFO) per share of $2.28 surpassed the Zacks Consensus Estimate of $2.26. The figure also improved 4.1% from the year-ago tally of $2.19.

Total revenues of $576.0 million were up 4.6% year over year, as revenues from stabilized operating communities and development communities recorded growth. The reported figure also outpaced the Zacks Consensus Estimate of $574.3 million. Results highlight growth in average rental rates.

Quarter in Detail   

For the reported quarter, average rental rates were up 2.5% year over year, while economic occupancy edged down 0.2% from the year-ago quarter.

Revenues from established communities — consolidated communities that have stabilized operations as of Jan 1, 2017, are neither executing nor planning any significant redevelopment work, and are not held for sale or planned for disposition within the current year — improved 2.3% year over year to $427.0 million. This indicates increase in average rental rates, partly offset by a fall in economic occupancy.

Operating expenses for established communities escalated 0.5% on a year-over-year basis. Consequently, NOI from established communities increased 3.1% year over year to around $303.1 million.

Notable Portfolio Activity

During the third quarter, AvalonBay acquired Avalon Arundel Crossing, in Linthicum Heights, MD, for $83.0 million. The property comprises 310 apartment homes. Further, the company accomplished development of two communities, for an aggregate capital cost of $314.0 million. These communities contain a total of 591 apartment homes.

The company also began construction of two communities which are expected to have 652 apartment homes and 7,000 square feet of retail space. These communities will be developed for an aggregate estimated cost of $205.0 million.

As of Sep 30, 2018, AvalonBay had 19 communities under construction (expected to contain in total 6,107 apartment homes and 127,000 square feet of retail space), which will likely be accomplished for a projected total capital cost of $2.7 billion.

Liquidity Position

As of Sep 30, 2018, AvalonBay had $56.0 million outstanding under its $1.5-billion unsecured credit facility. The company had around $281.6 million in unrestricted cash and cash in escrow as of that date. In addition, the company’s annualized net debt-to-core EBITDA for the September quarter was 4.9 times.

Outlook

For fourth-quarter 2018, AvalonBay expects core FFO per share of $2.27-$2.35. The Zacks Consensus Estimate for the same is currently pegged at $2.31.

For full-year 2018, the company expects core FFO per share of $8.96-$9.04. The Zacks Consensus Estimate for the same is $8.99.

In Conclusion

Moving ahead, AvalonBay is expected to benefit from its high quality assets in premium locations, favorable demographics, household formation, recovering economy and job market growth.

However, new apartment deliveries are anticipated to remain elevated in the company’s markets in the near-to-mid term. Furthermore, high concession activity amid elevated supply remains a concern. Amid these, the company’s fundamentals are likely to bear the brunt. Rate hikes add to its woes.

AvalonBay currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AvalonBay Communities, Inc. Price, Consensus and EPS Surprise
 

AvalonBay Communities, Inc. Price, Consensus and EPS Surprise | AvalonBay Communities, Inc. Quote

We now look forward to the earnings releases of other REITs like Mid-America Apartment Communities, Inc. MAA, Federal Realty Investment Trust FRT and Realty Income Corp. O, which are slated to report their quarterly numbers on Oct 31.

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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