AvalonBay Reports in Line - Analyst Blog

AvalonBay Communities Inc. (AVB), a leading real estate investment trust (REIT), reported fiscal 2010 fourth quarter funds from operations (FFO) of $86.8 million or $1.01 per share, compared with $52.7 million or $0.64 per share in the year-earlier quarter. Fund from operations, 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. The reported quarterly FFO was in line with the Zacks Consensus Estimate.

For full year 2010, the company reported FFO of $338.4 million or $4.00 per share, compared with $313.2 million or $3.89 per share in the previous year. The reported fiscal FFO was also in line with the Zacks Consensus Estimate.

Total revenues during the reported quarter increased 8.2% year-over-year to $231.9 million and exceeded the Zacks Consensus Estimate of $230 million. For full year 2010, total revenues increased 5.2% year-over-year to $895.3 million and exceeded the Zacks Consensus Estimate of $889 million.

Same-store quarterly rental revenues increased 2.5% year-over-year due to a 2.9% rise in average rental rates, partially offset by 0.4% decrease in economic occupancy. Same-store operating expenses increased 1.7% during the quarter compared with the year-ago period, while net operating income (NOI) increased 2.9% year-over-year.

For fiscal 2010, same-store rental revenues decreased 0.9% year-over-year due to a 1.3% fall in average rental rates, partially offset by 0.4% increase in economic occupancy. Same-store operating expenses increased 2.6% during the year compared with the previous year, while NOI decreased 2.8% year-over-year.

The company started five new development projects during the quarter totaling 1,177 apartment homes for an estimated cost of $301.2 million. During the quarter, AvalonBay completed the construction of Avalon Fort Greene, New York, (631 apartment homes) for a total cost of $303.0 million; Avalon Northborough II, Northborough, (219 apartment homes) for a total cost of $35.0 million; and Avalon Walnut Creek, Walnut Creek, (418 apartment homes) for a total cost of $151.3 million.

At the same time, the company started five new redevelopment projects during the quarter totaling 1,571 apartment homes for an estimated cost of $59.2 million. During the quarter, AvalonBay completed the redevelopments of Avalon at Diamond Heights, California, (154 apartment homes) for a total cost of $4.3 million; Avalon at Cedar Ridge, California, (195 apartment homes) for a total cost of $5.0 million; and Avalon Warm Springs, California, (235 apartment homes) for a total cost of $6.7 million.

During the quarter, AvalonBay sold its former corporate office in Alexandria for $8.2 million. Also during the quarter, AvalonBay Value Added Fund II, L.P., a private discretionary real estate investment vehicle in which the company holds an equity interest of approximately 31%, acquired two properties. These included Canyonwoods, a garden-style community consisting of 140 apartment homes in California for $24.7 million; and Fox Run Apartments, a garden-style community consisting of 776 apartment homes in New Jersey for $86.5 million.

During the quarter, the company sold 432,832 shares at an average price of $112.44 per share, for net proceeds of $47.9 million. Subsequent to the quarter-end, the company sold an additional 177,837 shares at an average price of $111.15 per share for net proceeds of $19.5 million. At year-end 2010, AvalonBay had $479.8 million of unrestricted cash and cash in escrow. In addition, the company had full availability under its $1 billion unsecured credit facility.

With the gradual improvement in apartment fundamentals and continued economic growth in 2011, AvalonBay expects FFO for first quarter 2011 in the range of $1.00 to $1.04, while FFO for full year 2011 is expected in the range of $4.50 to $4.75.  

We maintain our Neutral rating on the stock, which presently has a Zacks #3 Rank that translates into a short-term “Hold” rating. We also have a ‘Neutral' recommendation and a Zacks #2 Rank (short-term ‘Buy') for Apartment Investment & Management Co. (AIV), one of the competitors of AvalonBay.

 
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