AvalonBay Communities Inc.
) first quarter 2013 core funds from operations (FFO) reached
$1.36 per share, a cent above the Zacks Consensus Estimate.
Including non-routine items, FFO per share descended 39.1% year
over year to 78 cents from $1.28 for the prior-year period.
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Results included the positive impact from community sales and
related gains in 2013, a rise in net operating income (NOI) from
the Archstone Acquisition and existing and developed communities.
However, acquisition costs and increased depreciation associated
with the Archstone Acquisition acted as dampeners.
Total revenue during the reported quarter increased 23.9% year
over year to $315.6 million and came ahead of the Zacks Consensus
Estimate of $305 million.
Quarter in Detail
Same-store rental revenues increased 4.9% year over year to
$205.8 million, thanks to an increase in average rental rates and
economic occupancy. Average rental rates climbed 4.7% year over
year, while economic occupancy advanced 0.2%.
Same-store operating expenses escalated 3.3% year over year to
$62.8 million and consequently, same-store NOI during the
reported quarter surged 5.6% year over year to $143.0 million.
The Archstone Aquisition
In Feb 2013, AvalonBay, along with
) completed the acquisition of all the assets and assumed all of
the liabilities of Archstone Enterprise LP. Particularly,
AvalonBay acquired 40% of Archstone's assets and liabilities.
This included the direct and indirect interests in 64 operating
communities, 6 communities that are under development and/or in
lease-up currently. Furthermore, it includes interests in
development rights and certain other joint ventures.
As part of its payment for the acquisition, AvalonBay issued 14.9
million shares of its common stock, assumed $3.5 billion
principal amount of consolidated secured indebtedness, paid
$749.0 million in cash and assumed certain other liabilities of
Archstone. Notably, the first quarter results include around
$69.3 million in costs related to the Archstone Acquisition.
As of Mar 31, 2013, AvalonBay had no amounts outstanding under
its $1.3 billion unsecured credit facility. It had $541.1 million
in unrestricted cash and cash in escrow as of that date.
AvalonBay repaid $100.0 million principal amount of its 4.95%
coupon unsecured notes pursuant to their scheduled maturity in
March. Moreover, in April, the company paid back a 4.69%
fixed-rate, secured mortgage note in the amount of $170.1 million
pursuant to its scheduled maturity.
AvalonBay anticipates second quarter 2013 FFO per share to range
from $1.49 - $1.53. For full-year 2013, management has revised
its outlook upwards and now expects FFO per share to range from
$4.98 - $5.28, up from $4.11 - $4.47 per share.
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. The Archstone deal can be
regarded as a big move toward strengthening its presence in the
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 augur
well for its top-line expansion. Yet, the company has a
significant development pipeline, which increases its operational
AvalonBay currently holds a Zacks Rank #3 (Hold). Other REITs
that are performing better and are worth a look include
Simon Property Group Inc.
Acadia Realty Trust
), both carrying a Zacks Rank #2 (Buy).
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.