Aided by growth in rental revenue,
AvalonBay Communities Inc.
) delivered a positive earnings surprise of about 3.16% in the
third quarter of 2013. The apartment real estate investment trust
(REIT) reported core funds from operations (FFO) of $1.63 per
share, beating the Zacks Consensus Estimate of $1.58 per share.
The core FFO per share was also 15.6% ahead of the prior-year
AVALONBAY CMMTY (AVB): Free Stock Analysis
EQUITY RESIDENT (EQR): Free Stock Analysis
TAUBMAN CENTERS (TCO): Free Stock Analysis
VENTAS INC (VTR): Free Stock Analysis Report
To read this article on Zacks.com click here.
Improved results from its new development communities as well as
its stabilized portfolio have helped the company post encouraging
quarterly results. However, including non-routine items, FFO per
share declined 18.1% year over year to $1.18 from $1.44 for the
Total revenue during the reported quarter increased 47.2% year
over year to $400.3 million and came ahead of the Zacks Consensus
Estimate of $395 million.
Quarter in Detail
Same-store rental revenues increased 3.9% year over year to
$214.9 million. This was aided by an escalation in average rental
rates but partly dwarfed by a fall in economic occupancy. Average
rental rates climbed 4.4% year over year, while economic
occupancy declined 0.5%.
Same-store operating expenses moved up 3.3% year over year to
$66.8 million and consequently, same-store NOI during the
reported quarter escalated 4.2% year over year to $148.1 million.
Notable Portfolio Activities in Q3
During the reported quarter, AvalonBay commenced the construction
of four communities - Avalon Willoughby Square/AVA DoBro in
Brooklyn, N.Y.; Avalon at Stratford in Stratford, Conn.; Avalon
Hayes Valley in San Francisco, Calif.; and Maple Leaf (a legacy
Archstone joint venture) in Cambridge, Mass. - for a projected
total capital cost of $592.8 million.
AvalonBay accomplished the development of two communities -
Avalon Shelton in Shelton, Conn. and Avalon Hackensack in
Hackensack, N.J. - for an aggregate capital cost of $93.9
AvalonBay added two development rights during the quarter. It
also acquired land parcels (to develop three apartment
communities) for approximately $48.8 million.
AvalonBay started the redevelopment of one Eaves branded
community with a projected total capital cost of $11.9 million
(excluding costs incurred prior to redevelopment).
Moreover, the redevelopment of two Avalon branded communities
were accomplished by the company during the quarter for a total
capital cost of 12.8 million (excluding costs incurred before
During the quarter, AvalonBay Value Added Fund, L.P. - a real
estate investment vehicle in which the company retains an equity
stake of around 15% - disposed Avalon at Cedar Place in Columbia,
Md., for $26.0 million. AvalonBay reaped a gain of nearly $0.7
million from this deal. Following the quarter end, the company
sold Archstone Vanoni Ranch in Ventura, Calif., for $82.0
As of Sep 30, 2013, AvalonBay had no borrowings outstanding under
its $1.3 billion unsecured credit facility. The company had
nearly $211.3 million in unrestricted cash and cash in escrow as
of that date.
During the reported quarter, AvalonBay issued unsecured notes
worth $400.0 million. The notes are due Oct 2020 and were issued
at a 3.625% interest rate.
AvalonBay anticipates fourth-quarter 2013 FFO per share to range
from $1.54 - $1.60. For full-year 2013, the company has revised
its outlook and now expects FFO per share in the range of $5.09 -
$5.15 versus the prior range of $5.05 - $5.25.
We remain encouraged with the solid second-quarter results at
AvalonBay. The comapny's high quality assets located in some of
the premium markets of the nation enable it to generate steady
Moreover, the company, which along with
) closed the Archstone acquisition in February, continues to aim
for expansion in the high barrier-to-entry regions of the U.S.
Also, its decent operating platform, enhanced development
pipeline that is mainly pre-funded and growth prospects in the
multifamily sector keep us optimistic.
However, with a considerable number of projects in the market
nearing completion, we expect the supply to increase in the near
term. This, in turn, may lead to a slow down in rent growth as
companies would seek occupancy increases.
AvalonBay currently carries a Zacks Rank #3 (Hold). We now look
forward to the results of other REITs that are scheduled to
release second-quarter 2013 results this week. These include
Taubman Centers Inc.
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.