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AvalonBay falls on soft 2013 FFO guidance

NEW YORK (AP) -- Shares of AvalonBay Communities dropped more than 3 percent Thursday following the apartment building owner's weaker-than-expected 2013 forecast.

THE SPARK: After the market closed Wednesday, AvalonBay said that it expects 2013 funds from operations, or FFO, between $4.11 and $4.47 per share. Excluding acquisition costs and other items, FFO is predicted to be $6.15 per share.

Analysts, on average, were predicting FFO of $6.19 per share, according to data provider FactSet.

FFO adds such items as amortization and depreciation to net income, and is considered a key gauge of a real estate investment trust's financial performance.

THE ANALYSIS: KeyBanc Capital Markets' Karin Ford said in a client note that investors are likely overlooking the company's 10.3 percent increase to its quarterly dividend and instead focusing on the 2013 outlook. However, the analyst maintained an "Underweight" — or "Sell" — rating.

Rod Petrik of Stifel Nicolaus views the 2013 forecast as a bit light, saying it is below his estimate for FFO of $6.29 per share. But he noted that the company has more than 6,500 apartment units in its development pipeline, and that will increase when it closes its pending acquisition of Archstone Enterprise LP. He added that AvalonBay has "the strongest balance sheet in the apartment sector."

The analyst kept a "Hold" rating on the shares.

SHARE ACTION: AvalonBay Communities Inc.'s stock fell $4.92, or 3.6 percent, to $130.72 in afternoon trading. Over the last 52 weeks, the shares have traded between $126.12 and $151.23.