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

AvalonBay Communities, Inc.’s (NYSE:AVB) third-quarter 2019 core funds from operations (FFO) per share of $2.34 increased 2.6% year over year. However, the figure missed the Zacks Consensus Estimate by a penny.

This year-over-year growth indicates increase in average rental rates, while economic occupancy registered a decline.

Total revenues of $587.6 million were up 2% year over year. The revenue figure also surpassed the Zacks Consensus Estimate of $585.9 million.

Quarter in Detail

In the reported quarter, revenues from established communities improved 2.7% year over year to $461.2 million. Results reflect a 2.9% increase in average rental rates, while economic occupancy edged down 0.2%.

Operating expenses for established communities flared up 4.2% on a year-over-year basis. Consequently, NOI from established communities increased 2.1% year on year to around $327 million.

During the third quarter, the company acquired two communities — Portico at Silver Spring Metro, in Silver Spring, MD, comprising 151 apartment homes for $43.45 million and Avalon Bonterra, in Hialeah, FL, containing 314 apartment homes for $90 million.

The company sold four wholly-owned operating communities for $259.6 million, leading to a gain of $130.4 million in accordance with GAAP. These included AVA Stamford, in Stamford, CT; Archstone Lexington, in Flower Mound, TX; Memorial Heights Villages, in Houston, TX; and
Avalon Orchards, in Marlborough, MA. With the sale of Archstone Lexington and Memorial Heights Villages, the company completed its exit from the Texas market.

Further, during the quarter, the company completed the development of AVA Esterra Park, in Redmond, WA, comprising 323 apartment homes, for a total capital cost of $91 million.

As of Sep 30, 2019, AvalonBay had 20 communities under construction (expected to contain in total 6,700 apartment homes and 94,000 square feet of retail space), which will likely be accomplished for a projected total capital cost of $2.5 billion.

Balance-Sheet Position

As of Sep 30, 2019, AvalonBay did not have any borrowings outstanding under its $1.75-billion unsecured credit facility. The company had around $334.75 million in unrestricted cash and cash in escrow as of the same date. In addition, the company’s annualized net debt-to-core EBITDA for the July-September quarter was 4.7 times.

In Conclusion

Although AvalonBay outpaced revenue projections in the quarter, we are slightly disappointed with its FFO miss. The company registered growth in average rental rates in the quarter but a fall in occupancy and rising operating expenses played spoilsport.

Nevertheless, the company will likely benefit from its high-quality assets in premium locations, favorable demographics, household formation and job-market growth. However, new apartment deliveries are likely to remain elevated in the company’s markets in the near-to-mid term, curtailing robust rent and occupancy growth.

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

We now look forward to the earnings releases of other REITs like Duke Realty Corporation (NYSE:DRE) , Mid-America Apartment Communities, Inc. (NYSE:MAA) , Apartment Investment and Management Company (NYSE:AIV) . While Duke Realty and Mid-America are slated to report third-quarter earnings on Oct 30, Apartment Investment has its quarterly release scheduled for Oct 31.

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

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