Avalonbay Communities Inc.
), a leading multifamily real estate investment trust (REIT),
reported strong third quarter 2012 results with a 30.4%
year-over-year increase in funds from operations (FFO) to $140.2
million compared to $107.6 million in the year-earlier quarter.
On a per share basis, FFO surged 23.1% to $1.44 during the
reported quarter from $1.17 in the year-ago period.
The better-than-expected performance was primarily attributable
to incremental contribution from newly developed and acquired
properties and a decrease in net interest expense. The reported
FFO for third quarter 2012 surpassed the Zacks Consensus Estimate
by 4 cents. Total revenues during the reported quarter increased
11.6% year over year to $271.9 million and exceeded the Zacks
Consensus Estimate of $265 million.
Same-store quarterly rental revenues increased 5.6% year over
year to $194.8 million due to a 5.1% rise in average rental rates
to $2,125 per unit. Economic occupancy increased 0.5% on a
year-over-year basis to 96.3%. Same-store net operating income
(NOI) during the reported quarter surged 7.1% compared to the
Avalonbay started four new development projects during the
quarter totaling 837 apartment homes for an estimated total cost
of $258.9 million. These included Avalon at Wesmont Station II in
Wood-Ridge, New Jersey; Avalon Bloomingdale in Bloomingdale, New
Jersey; AVA 55 Ninth in San Francisco, California; and Avalon
Morrison Park in San Jose, California.
At the same time, the company completed the construction of
Avalon North Bergen in North Bergen, New Jersey, and Avalon Ocean
Avenue in San Francisco, California for a total capital cost of
Avalonbay started redevelopment activities during the quarter on
The Avalon in Bronxville, New York. This redeveloped project has
110 apartment homes and is estimated to cost about $8.3
The company also completed the redevelopment of five
communities (1,034 apartment homes) for a total cost of $32.1
million. These included Eaves Foster City in Foster City,
California; Eaves Santa Margarita in Rancho Santa Margarita,
California; AVA Newport in Costa Mesa, California; Avalon Wilton
I in Wilton, Connecticut; and Avalon at Lexington in Lexington,
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During the reported quarter, Avalonbay acquired four land parcels
for $51.3 million. In addition, the company also acquired a joint
venture property titled Avalon Del Rey in Los Angeles,
California. Avalonbay has a 30% ownership stake in this 309
apartment home community.
As of September 30, 2012, Avalonbay had full availability under
its $750 million unsecured credit facility and $714.0 million of
unrestricted cash and cash in escrow. During the reported
quarter, the company sold over 1.0 million shares for $141.87
each for net proceeds of $146.1 million. At quarter-end, the
company had a total debt burden of $3.8 billion.
Avalonbay expects FFO for fourth quarter 2012 in the range of
$1.40 to $1.45, while FFO for full year 2012 is expected in the
range of $5.45 to $5.50.
We maintain our long-term Neutral rating on Avalonbay, which
presently carries a Zacks #3 Rank that translates into a
short-term Hold recommendation. We also have a Neutral
recommendation and a Zacks #3 Rank for
Apartment Investment & Management Co.
), a competitor of Avalonbay.
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.