AvalonBay's FFO Tops, Guides High - Analyst Blog

Aided by growth in rental revenue, AvalonBay Communities Inc. ( AVB ) 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.

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 prior-year period.

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 $5.6 million.

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, N.J.

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 that date.

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 Archstone purchase.

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 before).

Our Viewpoint

We remain encouraged with the solid second-quarter results at AvalonBay. The company, which along with Equity Residential ( EQR ) 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. ( CBG ) and Taubman Centers Inc. ( TCO ).

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

CBRE GROUP INC (CBG): Free Stock Analysis Report

EQUITY RESIDENT (EQR): Free Stock Analysis Report

TAUBMAN CENTERS (TCO): 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 Nasdaq, Inc.

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

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