Aided by growth in rental revenue,
AvalonBay Communities Inc.
) delivered a positive earnings surprise of about 2.5% for the
second quarter of 2013. The apartment real estate investment
trust (REIT) reported core funds from operations (FFO) of $1.62
per share, beating the Zacks Consensus Estimate of $1.58 per
share. The core FFO per share was also 20.9% ahead of the
prior-year quarter figure.
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Improved results from its operating portfolio and leasing of new
development communities have helped the company post encouraging
quarterly results. Including non-routine items, FFO per share
ascended 15.7% year over year to $1.55 from $1.34 for the
Total revenue during the reported quarter increased 49.0% year
over year to $390.1 million and came ahead of the Zacks Consensus
Estimate of $383 million. Same store revenue and net operating
income (NOI) results have surpassed expectations. Therefore,
prompted by decent multi-family operating fundamentals, the
company raised its revenue, NOI and adjusted FFO growth outlook.
Quarter in Detail
Same-store rental revenues increased 5.2% year over year to
$211.9 million, owing to an escalation in average rental rates
and economic occupancy. Average rental rates climbed 4.3% year
over year, while economic occupancy advanced 0.9%.
Same-store operating expenses moved up 2.0% year over year to
$63.4 million and consequently, same-store NOI during the
reported quarter escalated 6.6% year over year to $148.6 million.
Notable Portfolio Activities in 2Q
During the reported quarter, AvalonBay commenced the construction
of three communities - Avalon Canton in Canton, Mass., Avalon
Alderwood I in Lynnwood, Wash, and Avalon San Dimas in San Dimas,
Calif. The projected cost for the communities' development stands
at $151.5 million. The company also started the redevelopment of
AVA Pasadena in Pasadena, Calif. for a projected capital cost of
AvalonBay accomplished the development of three communities for a
total capital cost of $134.4 million. The communities were -
Avalon Irvine II, located in Irvine, Calif, AVA Ballard in
Seattle, Wash., and Avalon at Wesmont Station II in Wood-Ridge,
AvalonBay added nine development rights during the quarter. It
also acquired five land parcels for approximately $70.2 million.
AvalonBay sold Avalon at Dublin Station I, located in Dublin,
Calif. during the reported quarter for $105.4 million. The deal
led to a gain of $33.7 million (on GAAP basis) and $20.1 million
as economic gain.
As of Jun 30, 2013, AvalonBay had $142.0 million outstanding
under its $1.3 billion unsecured credit facility. The company had
nearly $205.2 in cash, restricted cash, and cash in escrow as of
AvalonBay executed secured debt activity during the quarter that
led to a decline in its outstanding secured indebtedness by
approximately $204.0 million. In addition, the company paid
around $32.1 million for redemption of its proportionate share of
preferred interest obligations that were assumed as part of the
Lehman Sale of Stock
As part of the Archstone deal, AvalonBay issued nearly 14.9
million shares of its common stock to Lehman Brothers Holdings
Inc. During the second quarter, Lehman sold around 7.87 million
of these shares in a secondary public offering.
AvalonBay anticipates third quarter 2013 FFO per share to range
from $1.13 - $1.19. For full-year 2013, management has revised
its outlook upwards and now expects FFO per share in the range of
$5.05 - $5.25 versus the prior range of $4.98 - $5.28.
Following the better-than-expected rental rates and occupancy
trends in the first half of the year and based on the current
improving prospects, the company has upped its full-year 2013
revenue growth outlook. It expects same store revenue increase of
4.25% and 5.0% (previously 3.5% and 5.0%) and same-store NOI
growth of 5.0% and 5.75% (as against 4.0% and 5.5% projected
We remain encouraged with the solid second-quarter results at
AvalonBay. 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.
Moreover, its decent operating platform and prospects for growth
in the multifamily sector keep us optimistic.
AvalonBay currently carries a Zacks Rank #2 (Buy). We now look
forward to the other REITs releasing next. These include
CBRE Group Inc.
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.