AvalonBay Q4 FFO Meets Estimates, Hikes Div - Analyst Blog

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Aided by growth in rental revenue, AvalonBay Communities Inc. ( AVB ) reported fourth-quarter 2013 core funds from operations (FFO) of $1.62 per share that came 17.4% ahead of the prior-year quarter FFO of $1.38 per share. The results were in line with the Zacks Consensus Estimate. The company has also raised its first-quarter 2014 dividend by 8.4% to $1.16 per share.

Improved results from its existing portfolio along with leasing and stabilization of newly developed communities have helped this residential real estate investment trust (REIT) post encouraging quarterly results. Including non-routine items, FFO per share moved north 18.9% year over year to $1.51 from $1.27 for the prior-year period.

Total revenue during the reported quarter increased 45.0% year over year to $400.0 million and came ahead of the Zacks Consensus Estimate of $393 million. Results were driven by the Archstone acquisition and new developments as well as growth in same-store revenues.

For full-year 2013, AvalonBay reported core FFO per share of $6.23, up from $5.43 in the prior year. Total revenues escalated 41.5% year over year to $1.5 billion.

Quarter in Detail

Same-store rental revenues increased 3.5% year over year to $210.9 million. This was aided by an escalation in average rental rates but partly offset by a fall in economic occupancy. Average rental rates climbed 3.8% year over year, while economic occupancy declined 0.3%.

Same-store operating expenses moved up 5.0% year over year to $65.1 million and consequently, same-store NOI during the reported quarter rose 2.9% year over year to $145.8 million.

Notable Portfolio Activities in Q4

AvalonBay acquired Arboretum in Burlington, Mass. for $79.9 million. On the other hand, the company sold 4 wholly-owned communities (including 2 communities purchased as part of the Archstone acquisition) for a total sale price of $495.0 million, leading to a gain of $160.1 million.

AvalonBay concluded the development of 4 communities for a total capital cost of $222.3 million. The company began construction of 4 communities that would be developed for an estimated total capital cost of $319.7 million.

It purchased land parcels for building apartment communities at an aggregate price of $77.9 million. Moreover, five development rights were added by the company. AvalonBay also accomplished the redevelopment of one Avalon and one Eaves community for a total capital cost of $21.1 million, excluding costs incurred before the redevelopment.

Liquidity

As of Dec 31, 2013, AvalonBay had no borrowings outstanding under its $1.3 billion unsecured credit facility. The company had around $380.0 million in unrestricted cash and cash in escrow as of that date.

Outlook

AvalonBay anticipates first-quarter 2014 FFO per share to range from $1.60 - $1.64. For full-year 2014, the company expects FFO per share in the range of $6.60 - $6.90. This represents a decent uptick from the prior-year figure. The Zacks Consensus Estimate for first-quarter and full-year 2014 of $1.64 and $6.80, respectively, also lie within the ranges provided by the company.

AvalonBay's guidance is backed by the company's expectation of job growth and total personal income of 1.6% and 5.4%, respectively in its markets. The company expects 2014 results to be driven by healthy NOI growth, accomplishment of over $1 billion of development and full year benefit of its Archstone investment. In particular, for full-year 2014, the company projects same store rental revenue growth of 3.0% - 4.25%, increase of 2.0% to 3.0% in expenses and NOI rise of 3.0% - 5.0%.

AvalonBay could need up to $1.5 billion of external funding that could be met through asset dispositions, new unsecured debt and common or preferred stock issuances.  

Dividend Raise

AvalonBay enhanced its quarterly dividend rate by 8.4% to $1.16 per share from $1.07 per share. The increased dividend will be paid on Apr 15, to common stockholders of record as of Mar 31, 2014.

Lehman Stake Update

As part of the Archstone deal, AvalonBay and Equity Residential ( EQR ) delivered shares of common stock of the former worth $1.88 billion and that of the latter valued at $1.93 billion to a Lehman affiliate. As of Jan 24, 2014, as per a bankruptcy court filing, Lehman's residual holdings in AvalonBay and Equity Residential had an aggregate market value of around $582 million on a combined basis.

Our Viewpoint

AvalonBay's decent operating platform, enhanced development pipeline and growth prospects in the multifamily sector keep us optimistic. Moreover, the Archstone acquisition, which helped in strengthening its presence in the upscale regions, is projected to aid in top line improvement going forward.

Yet, with a considerable number of projects in the market nearing completion, we expect the supply to increase in the near term. This may lead to a slowdown 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 residential REITs - BRE Properties Inc. ( BRE ) and UDR, Inc. ( UDR ), which are scheduled to report next week. Both BRE Properties and UDR have a Zacks Rank #2 (Buy).

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.



AVALONBAY CMMTY (AVB): Free Stock Analysis Report

BRE PROPERTIES (BRE): Free Stock Analysis Report

EQUITY RESIDENT (EQR): Free Stock Analysis Report

UDR INC (UDR): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: AVB , BRE , EQR , UDR

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