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AvalonBay Communities, Inc.’s (AVB - Free Report) third-quarter 2016 funds from operations (“FFO”) per share of $2.11 missed the Zacks Consensus Estimate of $2.12. However, the figure grew 4.5% from the year-ago number.
Though the company achieved growth in net operating income (“NOI”) from newly developed and existing operating communities, the benefit was partly offset by an increase in outstanding share count.
However, total revenue of this residential real estate investment trust (“REIT”) increased by 8.6% year over year to $516.2 million as revenues from development communities and established communities reported growth. Total revenue also surpassed the Zacks Consensus Estimate of $513 million.
Average rental rates were up 3.9% year over year with the highest increase coming in the South-California portfolio (6.0%), followed by North-California portfolio (5.8%) and Pacific North West (5.7%).
Established Communities' Revenues Increase, Expenses Go Up
Revenues from established communities – those that have stabilized operations as of Jan 1, 2015 and are neither executing nor planning any significant redevelopment work within the current year – improved 3.7% year over year. This improvement was driven by a 3.9% increase in average rental rates which offset the 0.1% decrease in economic occupancy.
However, operating expenses for established communities climbed 2.2% year over year. Consequently, net operating income from established communities rose 4.3% year over year to $271.6 million.
Solid Liquidity Position
As of Sep 30, 2016, AvalonBay had $170.0 million outstanding under its $1.5 billion unsecured credit facility. The company had around $232.2 million in unrestricted cash and cash in escrow as of that date. Moreover, the company’s annualized net debt-to-core EBITDA for third-quarter 2016 was 5.1 times.
Notable Portfolio Activity
During the third quarter, AvalonBay acquired two communities – Avalon Columbia Pike, in Arlington, VA, (269 apartment homes and 27,000 square feet of retail space) for a purchase price of $102.0 million and Studio 77, in North Hollywood, CA (156 apartment homes and 11,000 square feet of retail space) for $72.1 million.
On the other hand, the company sold three wholly owned communities, comprising 1,051 apartment homes in aggregate, for $275.5 million in total. This resulted in a gain (GAAP) of $197.8 million and an economic gain of $140.1 million.
Further, the company completed the development of two communities – Avalon Dublin Station II, in Dublin, CA; and Avalon Alderwood II, in Lynnwood, WA – for an aggregate capital cost of $111.2 million.
Outlook
For fourth-quarter 2016, AvalonBay expects its FFO per share in the range of $2.06–$2.12 and core FFO per share in the range of $2.08–$2.14. Currently, the Zacks Consensus Estimate for the quarter is $2.13.
For 2016, the company projects FFO per share in the range of $8.23–$8.29 and core FFO per share in the range of $8.15–$8.21. Presently, the Zacks Consensus Estimate is pegged at $8.32.
In Conclusion
We are discouraged with AvalonBay’s lower-than-expected performance in the third quarter. Going forward, completion of a number of projects in its markets, leading to higher supply, is likely to result in moderation of rent growth. Also, there is a trend of increased concessions in some of the company’s markets. Nevertheless, the company has a solid portfolio of high quality assets in premium locations. Its balance sheet is also very strong.
We now look forward to the results of other residential REITs like Equity Residential (EQR - Free Report) , Essex Property Trust Inc. (ESS - Free Report) and Apartment Investment and Management Company (AIV - Free Report) , commonly known as Aimco. Equity Residential is slated to release its third-quarter result on Oct 25, while Essex Property and Aimco have their earnings scheduled on Oct 27.
Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. 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.
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AvalonBay's (AVB) Q3 FFO Misses Estimates, Revenues Beat
AvalonBay Communities, Inc.’s (AVB - Free Report) third-quarter 2016 funds from operations (“FFO”) per share of $2.11 missed the Zacks Consensus Estimate of $2.12. However, the figure grew 4.5% from the year-ago number.
Though the company achieved growth in net operating income (“NOI”) from newly developed and existing operating communities, the benefit was partly offset by an increase in outstanding share count.
However, total revenue of this residential real estate investment trust (“REIT”) increased by 8.6% year over year to $516.2 million as revenues from development communities and established communities reported growth. Total revenue also surpassed the Zacks Consensus Estimate of $513 million.
Average rental rates were up 3.9% year over year with the highest increase coming in the South-California portfolio (6.0%), followed by North-California portfolio (5.8%) and Pacific North West (5.7%).
Established Communities' Revenues Increase, Expenses Go Up
Revenues from established communities – those that have stabilized operations as of Jan 1, 2015 and are neither executing nor planning any significant redevelopment work within the current year – improved 3.7% year over year. This improvement was driven by a 3.9% increase in average rental rates which offset the 0.1% decrease in economic occupancy.
However, operating expenses for established communities climbed 2.2% year over year. Consequently, net operating income from established communities rose 4.3% year over year to $271.6 million.
Solid Liquidity Position
As of Sep 30, 2016, AvalonBay had $170.0 million outstanding under its $1.5 billion unsecured credit facility. The company had around $232.2 million in unrestricted cash and cash in escrow as of that date. Moreover, the company’s annualized net debt-to-core EBITDA for third-quarter 2016 was 5.1 times.
Notable Portfolio Activity
During the third quarter, AvalonBay acquired two communities – Avalon Columbia Pike, in Arlington, VA, (269 apartment homes and 27,000 square feet of retail space) for a purchase price of $102.0 million and Studio 77, in North Hollywood, CA (156 apartment homes and 11,000 square feet of retail space) for $72.1 million.
On the other hand, the company sold three wholly owned communities, comprising 1,051 apartment homes in aggregate, for $275.5 million in total. This resulted in a gain (GAAP) of $197.8 million and an economic gain of $140.1 million.
Further, the company completed the development of two communities – Avalon Dublin Station II, in Dublin, CA; and Avalon Alderwood II, in Lynnwood, WA – for an aggregate capital cost of $111.2 million.
Outlook
For fourth-quarter 2016, AvalonBay expects its FFO per share in the range of $2.06–$2.12 and core FFO per share in the range of $2.08–$2.14. Currently, the Zacks Consensus Estimate for the quarter is $2.13.
For 2016, the company projects FFO per share in the range of $8.23–$8.29 and core FFO per share in the range of $8.15–$8.21. Presently, the Zacks Consensus Estimate is pegged at $8.32.
In Conclusion
We are discouraged with AvalonBay’s lower-than-expected performance in the third quarter. Going forward, completion of a number of projects in its markets, leading to higher supply, is likely to result in moderation of rent growth. Also, there is a trend of increased concessions in some of the company’s markets. Nevertheless, the company has a solid portfolio of high quality assets in premium locations. Its balance sheet is also very strong.
AvalonBay currently carries a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AVALONBAY CMMTY Price, Consensus and EPS Surprise
AVALONBAY CMMTY Price, Consensus and EPS Surprise | AVALONBAY CMMTY Quote
We now look forward to the results of other residential REITs like Equity Residential (EQR - Free Report) , Essex Property Trust Inc. (ESS - Free Report) and Apartment Investment and Management Company (AIV - Free Report) , commonly known as Aimco. Equity Residential is slated to release its third-quarter result on Oct 25, while Essex Property and Aimco have their earnings scheduled on Oct 27.
Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. 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.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>