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AvalonBay (AVB) Q2 FFO Beat Reflects Growth in Occupancy

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AvalonBay Communities, Inc.’s (AVB - Free Report) second-quarter 2018 funds from operations (FFO) per share of $2.21 surpassed the Zacks Consensus Estimate of 2.19. The figure also recorded 16.3% growth from the year-ago figure of $1.90. Core FFO per share improved 6.7% year over year to $2.23.

Total revenues of $569.2 million increased 7.3% year over year, as revenues from stabilized operating communities and development communities recorded growth. The reported figure also outpaced the Zacks Consensus Estimate of $565.4 million. Results highlight growth in average rental rates and occupancy.

Quarter in Detail   

For the reported quarter, average rental rates were up 2.3% year over year, while economic occupancy inched up 0.2% from the year-ago quarter.

Revenues from established communities — consolidated communities that have stabilized operations as of Jan 1, 2017, are neither executing nor planning any significant redevelopment work, and are not held for sale or planned for disposition within the current year — improved 2.6% year over year, indicating increase in average rental rates and economic occupancy.

Operating expenses for established communities escalated 1.8% on a year-over-year basis. Consequently, NOI from established communities increased 2.9 % year over year to around $299.1 million.

Notably, during the quarter under review, the company accomplished development of two communities, for an aggregate capital cost of $141.0 million. These communities comprise a total of 554 apartment homes. Further, the company began construction of three communities that are expected to contain 828 apartment homes and 23,000 square feet of retail space. These communities will be developed for an aggregate estimated cost of $265.0 million.

As of Jun 30, 2018, AvalonBay had 19 communities under construction (expected to contain in total 6,048 apartment homes and 120,000 square feet of retail space), which will likely be accomplished for an estimated total capital cost of $2.8 billion. This includes the company’s share of communities being developed through joint ventures.

Liquidity Position

As of Jun 30, 2018, AvalonBay had no borrowings outstanding under its $1.5-billion unsecured credit facility. The company had around $349.9 million in unrestricted cash and cash in escrow as of that date. In addition, the company’s annualized net debt-to-core EBITDA for second-quarter 2018 was 5.0 times.

Outlook

For third-quarter 2018, AvalonBay expects core FFO per share of $2.22-$2.28. The Zacks Consensus Estimate for the same is currently pegged at $2.22.

For full-year 2018, the company expects core FFO per share of $8.87-$9.07. The Zacks Consensus Estimate for the same is $8.87.

In Conclusion

AvalonBay is well poised to grow on the back of its solid portfolio of high-quality assets in premium locations. Furthermore, the company is expected to benefit from favorable demographics, household formation, recovering economy and job market growth.

Nevertheless, new apartment deliveries are anticipated to remain elevated in the company’s markets in 2018. Also, high concession activity amid elevated supply remains a concern. Amid these, the company’s fundamentals are likely to be affected. Rate hike adds to its woes.

AvalonBay currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AvalonBay Communities, Inc. Price, Consensus and EPS Surprise
 

AvalonBay Communities, Inc. Price, Consensus and EPS Surprise | AvalonBay Communities, Inc. Quote

We now look forward to the earnings releases of other REITs like Public Storage (PSA - Free Report) , Essex Property Trust Inc. (ESS - Free Report) and Realty Income Corporation (O - Free Report) , which are slated to report their quarterly numbers on Aug 1.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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