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AvalonBay's (AVB) Q3 FFO Misses Estimates, Revenues Beat

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AvalonBay Communities Inc.’s (AVB - Free Report) third-quarter 2015 funds from operations (“FFO”) per share of $2.02 missed the Zacks Consensus Estimate by a penny. Also, FFO per share fell 5.6% from the prior-year quarter figure of $2.14 as the company recognized promoted interest from the sale of Avalon Chrystie Place in the prior-year period.

However, core FFO per share rose 11.6% year over year to $1.93 for the quarter. Results reflect a rise in net operating income (“NOI”) from newly developed and existing operating communities, which was partially marred by an increase in common shares outstanding.

Total revenue of this residential real estate investment trust (“REIT”) increased 10.4% year over year to around $475.4 million in the third quarter, surpassing the Zacks Consensus Estimate of $466 million.

Quarter in Detail

Same-store rental revenues improved 5.4% year over year, thanks to a 5.8% increase in average rental rates that offset the 0.4% decrease in economic occupancy. Same-store operating expenses climbed 6.4% year over year and consequently, same-store NOI rose 5.1% year over year to $247.6 million.

During the third quarter, AvalonBay completed the development of two communities (357 apartment homes in total) for an aggregate capital cost of $103.0 million.

AvalonBay acquired land for development for a total investment of $99.6 million. The company expects to commence construction of apartment communities on this land during the next 18 months.

On the other hand, the company sold Avalon Lyndhurst, a wholly-owned community (328 apartment homes) in Lyndhurst, NJ for $99.0 million, leading to a gain of $35.2 million (GAAP) and an economic gain of $18.0 million.

Liquidity

As of Sep 30, 2015, AvalonBay had no borrowings outstanding under its $1.3 billion unsecured credit facility. The company had around $420.4 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 2015 was 4.9 times.

Outlook

For fourth-quarter 2015, AvalonBay expects projected FFO per share in the range of $1.91 to $1.97 and core FFO per share in the range of $1.95 to $2.01. The Zacks Consensus Estimate for the quarter currently stands at $1.92.

For full-year 2015, the company estimates projected FFO per share in the range of $7.99 to $8.05 and core FFO per share to be $7.51 to $7.57. The Zacks Consensus Estimate for the full year is pegged at $8.00.

AvalonBay currently carries a Zacks Rank #2 (Buy). We look forward to the results of other S&P 500 residential REITs – Equity Residential (EQR - Free Report) , Apartment Investment and Management Company (AIV - Free Report) and Essex Property Trust Inc. (ESS - Free 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.

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