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AvalonBay's (AVB) Q4 Revenues Beat Estimates, Dividend Up

Zacks Equity Research

AvalonBay Communities, Inc.’s AVB fourth-quarter 2018 core funds from operations (FFO) per share of $2.31 missed the Zacks Consensus Estimate of $2.32. However, the figure matched the mid-point of the company’s core FFO per share outlook issued in October and also mirrored an improvement of 2.7% from the year-ago tally of $2.25.

Total revenues of $578.5 million were up 4.2% year over year, as revenues from stabilized operating communities and development communities recorded growth. The reported figure also outpaced the Zacks Consensus Estimate of $575.1 million. Results highlight growth in average rental rates. The company also announced a 3.4% hike in its quarterly dividend.

For full-year 2018, core FFO per share came in at $9.00, up 4.4% from the prior year tally of $8.62. This was backed by a 5.8% increase in total revenue to $2.28 billion.

Quarter in Detail   

In the reported quarter, average rental rates were up 2.7% year over year, while economic occupancy remained flat at 96.1%.

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 2.7% year over year to $412.5 million. This indicates increase in average rental rates.

Operating expenses for established communities escalated 2.7% on a year-over-year basis. Consequently, NOI from established communities increased 2.7% year over year to around $298.0 million.

As of Dec 31, 2018, AvalonBay had 21 communities under construction (expected to contain in total 6,609 apartment homes and 87,000 square feet of retail space), which will likely be accomplished for a projected total capital cost of $2.4 billion. However, the development pipeline excluded 15 West 61st Street for which the company is pursuing a potential for-sale strategy of individual condominium units for the residential part.

Balance-Sheet Position

As of Dec 31, 2018, AvalonBay did not have any borrowings outstanding under its $1.5-billion unsecured credit facility. The company had around nearly $217.9 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 Oct-Dec quarter was 4.6 times.

Moreover, the company sold 244,924 shares of common stock at an average sales price of $189.14 per share, reaping net proceeds of $45.6 million under its current continuous equity program established in December 2015.

Outlook

For full-year 2019, the company expects core FFO per share of $9.05-$9.55. The Zacks Consensus Estimate for the same lies within this range and is currently pinned at $9.31.

Dividend Hike

AvalonBay’s board of directors announced first-quarter 2019 dividend of $1.52 per share, reflecting a 3.4% increase from the prior-quarter payout of $1.47 per share. This dividend will be paid on Apr 15, to common stockholders of record as of Mar 29, 2019.

In Conclusion

AvalonBay is expected to benefit from its high quality assets in premium locations, favorable demographics, household formation, recovering economy and job-market growth. Yet, new apartment deliveries are anticipated to remain elevated in the company’s markets in the near-to-mid term, limiting robust rent growth.

AvalonBay currently carries 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

Recently, Equity Residential EQR posted its quarterly results. The company reported fourth-quarter 2018 normalized FFO per share of 84 cents, which missed the Zacks Consensus Estimate by a penny. However, normalized FFO per share came in higher than the 83 cents reported in the year-ago quarter. Though the company’s results reflect enhanced same-store NOI, casualty losses from its Washington, D.C. portfolio, and transaction activity in recent years had a negative impact.

Moreover, Essex Property Trust Inc. ESS reported fourth-quarter 2018 core FFO per share of $3.19, in line with the Zacks Consensus Estimate. Core FFO per share improved 6.0% from the year-ago quarter figure of $3.01. Results of this residential REIT reflect growth in same-property NOI. Improving economic environment and job growth helped in driving rental housing demand.

We now look forward to the earnings release of another REIT, UDR Inc. UDR, which is slated to report its quarterly numbers on Feb 12.

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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