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AvalonBay (AVB) Q3 FFO Misses Estimates, Revenues Up Y/Y

AvalonBay Communities, Inc.’s AVB third-quarter 2017 core funds from operations (FFO) per share of $2.19 missed the Zacks Consensus Estimate of $2.26. However, total revenues of $550.5 million managed to exceed the Zacks Consensus Estimate of $538.5 million.

Results highlight modest growth in average rental rates. Economic occupancy managed to increase only slightly in the quarter.

Nevertheless, the company’s core FFO per share recorded 5.8% growth from the year-ago figure of $2.07. This was driven by growth in net operating income (NOI) from existing, acquired and newly developed operating communities.

Also, total revenues increased 6.6% year over year as revenues from development communities and stabilized operating communities recorded 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 reported quarter, average rental rates were up 2.0% year over year, with the highest growth in the Pacific North West portfolio (4.1%), followed by the South California (3.8%) and New England (2.3%) portfolios. Economic occupancy inched up 0.2% from the year-ago quarter.

Revenues from established communities — those that stabilized operations as of Jan 1, 2016, are neither executing nor planning any significant redevelopment work and are not held for sale or planned for disposition within the current year — improved 2.2% year over year, indicating increase in average rental rates.

However, operating expenses for established communities flared up 2.4% on a year-over-year basis. Consequently, NOI from established communities rose 2.1% year over year to around $279.0 million.

Notably, in the third quarter, the company acquired The Lodge Denver West, in Lakewood, CO, (252 apartment homes) for roughly $76.8 million. The acquisition marked the company's entry into the Denver metropolitan area.

As of Sep 30, 2017, AvalonBay had 23 communities under construction (expected to contain 6,888 apartment homes in total), which are anticipated to be completed for an estimated total capital cost of $3.2 billion. This includes the company's share of communities being developed through joint ventures.

Liquidity Position

As of Sep 30, 2017, AvalonBay had $242.0 million outstanding under its $1.5-billion unsecured credit facility. The company had around $217.1 million in unrestricted cash and cash in escrow as of that date. In addition, the company’s annualized net debt-to-core EBITDA for third-quarter 2017 was 5.0 times.


For the fourth quarter, AvalonBay expects core FFO per share in the range of $2.21-$2.27. The Zacks Consensus Estimate for the same is currently pegged at $2.23.

For full-year 2017, the company projects core FFO per share in the band of $8.58-$8.64. The Zacks Consensus Estimate for the same is currently pegged at $8.43.

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 has a healthy balance sheet. Nevertheless, there is presence of elevated supply in a number of the company’s markets. Hence, growth in its stabilized portfolio is likely to remain modest in the upcoming period. Additionally, delay in construction activities in the development portfolio is likely to affect the company’s lease-up NOI in the near term. Rate hike add to its woes.

AvalonBay currently has a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Also, shares of AvalonBay have gained 2.6% year to date, underperforming the 4.8% rally of its industry.

We now look forward to the earnings releases of Essex Property Trust, Inc. ESS, Extra Space Storage Inc. EXR and Regency Centers Corporation REG, all of which are scheduled to report their numbers on Nov 1.

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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