Back to top

Analyst Blog

This page is temporarily not available.  Please check later as it should be available shortly. If you have any questions, please email customer support at support@zacks.com or call 800-767-3771 ext.  9339.

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

Liquidity

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.

Outlook

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 - Analyst Report) 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 - Analyst Report) and Taubman Centers Inc. (TCO - Analyst Report).

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.
 

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

Learn more

Start for as little as $4.50 per trade.

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
BITAUTO HOLD BITA 35.33 +14.82%
ANI PHARMACE ANIP 24.79 +14.66%
E HOUSECHINA EJ 10.99 +9.24%
CANADIAN SOL CSIQ 26.97 +7.15%
INTERNATIONA ICAGY 33.30 +5.38%