AvalonBay Communities Inc.
) reported modest results in the fourth quarter of 2012 as higher
expenses related to the Archstone acquisition and Superstorm
Sandy hurt its financials. The company reported fourth quarter
2012 funds from operations (FFO) of $1.27 per share, missing the
Zacks Consensus Estimate of $1.40 per share.
This multifamily real estate investment trust (REIT), which inked
a deal in November to purchase 40% of Archstone's assets and
liabilities, incurred acquisition costs worth 16 cents per share
in the reported quarter. Yet, capitalizing on its strong
operating platform and future growth potential, the company
announced a 10.3% hike in its dividend.
On a year-over-year basis, fourth quarter FFO per share increased
6.7%, helped by an incremental contribution from newly developed
and acquired properties and a decrease in net interest expense.
For full year 2012, AvalonBay's FFO per share came in at $5.32,
up 16.4% from $4.57 reported a year ago. This fell short of the
Zacks Consensus Estimate of $5.45 per share as expenses remained
Total revenue during the reported quarter increased 7.9% year
over year to $275.8 million and was almost in line with the Zacks
Consensus Estimate of $276 million. For full year 2012, total
revenue advanced 7.5% from a year ago to $1.06 billion and
marginally topped the Zacks Consensus Estimate of $ 1.05 billion.
Quarter in Detail
Same-store rental revenues increased 5.0% year over year, thanks
to an increase in average rental rates and economic
occupancy. Average rental rates climbed 4.7% year over year
to $2,127 per unit, while economic occupancy advanced 0.3% to
96.3%. Same-store net operating income (NOI) during the reported
quarter surged 5.9% year over year to $136.4 million.
The Archstone Deal
In November, AvalonBay, along with
), entered into an agreement with Lehman Brothers Holdings Inc.
to acquire the entire ownership stake of Archstone Enterprise LP
- one of the largest investors, developers and operators of
apartment communities in the U.S.
The deal will entitle AvalonBay to acquire 40% of Archstone's
assets and liabilities, while the remainder will be acquired by
Equity Residential. The transaction is expected to be
accomplished by the first quarter of 2013.
AVALONBAY CMMTY (AVB): Free Stock Analysis
BRANDYWINE RT (BDN): Free Stock Analysis
EQUITY RESIDENT (EQR): Free Stock Analysis
SIMON PROPERTY (SPG): Free Stock Analysis
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Notable Transactions during 4Q
AvalonBay acquired a garden-style community - Eaves Burlington -
located in Burlington, MA, for nearly $40.3 million.
Moreover, the company sold 2 communities - Avalon Wildreed and
Avalon Highgrove, both located in Everett, Wash. for $94.5
million. In addition, it realized income from a residual profit
interest of nearly $1.9 million associated with the sale of a
community in Kirkland, Wash.
AvalonBay commenced the construction of 3 communities during the
quarter, totaling 696 apartment homes for an estimated total cost
of $202.8 million. These included Avalon Wharton in NJ, Avalon
Ossining in NY and AVA Little Tokyo in California.
Moreover, the company completed the development of 2 communities
- Avalon Green II in NY and Avalon at Wesmont Station I in NJ -
aggregating 710 apartment homes for a total cost of $166.1
In addition, AvalonBay acquired 4 land parcels for $24.7 million.
It started the redevelopment of 2 communities, totaling 1,096
apartment homes, for an estimated total cost of $31.7 million.
Also, the company accomplished the redevelopment of 4
communities, totaling 1,111 apartment homes, for an aggregate
cost of $41.3 million.
As of Dec 31, 2012, AvalonBay had no amounts outstanding under
its $1.3 billion unsecured credit facility. It had $2.8 billion
in unrestricted cash and cash in escrow as of that date. Notably,
in December, the company entered into an amendment to enhance its
unsecured credit facility, extend the term and reduce its
interest expense and annual facility fee.
Moreover, to pre-fund the Archstone deal, AvalonBay raised $2.1
billion from a common stock offering of 16.7 million shares. It
also issued $250 million principal amount of unsecured notes.
AvalonBay anticipates first quarter 2013 FFO to be a loss of 62
cents to 66 cents per share. This will mainly result from costs
related to the Archstone acquisition.
For full year 2013, management expects FFO per share to range
between $4.11 and $4.47, based on same store rental revenues of
3.5% to 5.0% and same store NOI of 4.0% to 5.5%. Notably, the
full year 2013 FFO per share would represent a decline from the
2012 FFO per share of $5.32.
Concurrent with its fourth quarter earnings release, AvalonBay
announced a 10.3% hike in its quarterly dividend rate to $1.07
per share from 97 cents paid earlier. The increased dividend will
be paid on Apr 15, to common stockholders of record as of Mar 29.
We believe AvalonBay's focus on expansion in the high
barrier-to-entry regions of the U.S, will serve as a driving
factor for its top-line growth. Though the costs related to the
Archstone deal will affect its financials in the near term, the
deal can be regarded as a big move towards strengthening its
presence in the upscale regions.
Also, the company has a strong balance sheet with adequate
liquidity and limited debt maturities. Consequently, it has funds
to capitalize on potential acquisition opportunities, which
augurs well for its top-line expansion.
AvalonBay currently holds a Zacks Rank #3 (Hold). Other REITs
that are performing better and are worth a look include
Simon Property Group Inc.
Brandywine Realty Trust
), both carrying a Zacks Rank #2.
Note: 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.