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
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.
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
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