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AvalonBay's (AVB) Q2 FFO Lags Estimates, Revenues Up Y/Y

AvalonBay Communities, Inc.’s AVB second-quarter 2017 core funds from operations (“FFO”) per share of $2.09 missed the Zacks Consensus Estimate of $2.14. Total revenue of $530.5 million managed to marginally exceed the Zacks Consensus Estimate of $529.5 million.

Nevertheless, core FFO per share recorded 3.0% growth from the year-ago figure of $2.03. Results reflect growth in net operating income (“NOI”) from existing, acquired and newly developed operating communities.

Also, total revenue increased 5.6% year over year as revenues from development communities and stabilized operating communities witnessed growth.

AvalonBay Communities, Inc. Price, Consensus and EPS Surprise

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

Note: The EPS numbers presented in the above chart represent funds from operations (“FFO”) per share.

Quarter in Detail   

For the quarter, average rental rates were up 2.5% year over year, with the highest growth in the Pacific North West portfolio (5.1%), followed by the South California (3.9%) and New England (2.7%) portfolios. However, economic occupancy remained unchanged at 95.4%.

Revenues from established communities – those that stabilized operations as of Jan 1, 2016 and are neither executing nor planning any significant redevelopment work during the current year – improved 2.5% year over year, indicating increase in average rental rates.

However, operating expenses for established communities flared up 3.5% on a year-over-year basis. Consequently, NOI from established communities rose 2.1% year over year to nearly $277 million.

As of Jun 30, 2017, AvalonBay had 23 communities under construction (expected to contain 6,965 apartment homes in total), which are anticipated to be completed for an estimated total capital cost of around $3.2 billion. This includes the company's share of communities being developed through joint ventures.

Solid Liquidity Position

As of Jun 30, 2017, AvalonBay had $105.0 million outstanding under its $1.5-billion unsecured credit facility. The company had around $293.2 million in unrestricted cash and cash in escrow as of that date. Moreover, the company’s annualized net debt-to-core EBITDA for second-quarter 2017 was 5.0 times.


For the third quarter, AvalonBay expects core FFO per share in the range of $2.14–$2.20. The Zacks Consensus Estimate for the same is currently pegged at $2.19.

For full-year 2017, the company projects core FFO per share in the band of $8.50–$8.70. The Zacks Consensus Estimate for the same is currently pegged at $8.65.

In Conclusion

AvalonBay is well poised to grow on the back of its solid portfolio of high quality assets in premium locations. In addition, the company has a healthy balance sheet. Nevertheless, completion of a number of projects in the company’s markets, leading to higher supply, is likely to result in moderation of rent growth. Furthermore, hike in interest rates remains a concern.

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

Let us now look forward to the earnings releases of Condor Hospitality Trust Inc. CDOR, FelCor Lodging Trust Incorporated FCH and Hospitality Properties Trust HPT, all of which are expected to report their quarterly numbers in the upcoming days.

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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