Zacks_Analysts' Blog : AvalonBay Misses FFO Estimates - Analyst Blog

AvalonBay Communities Inc. (AVB), a leading real estate investment trust (REIT), reported fiscal 2011 fourth quarter funds from operations (FFO) of $113.4 million or $1.19 per share, compared with $86.8 million or $1.01 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 missed the Zacks Consensus Estimate by 2 cents.

For full year 2011, the company reported FFO of $414.5 million or $4.57 per share, compared with $338.4 million or $4.00 per share in the previous year. The reported fiscal FFO missed the Zacks Consensus Estimate by 3 cents.

Total revenues during the reported quarter increased 11.0% year over year to $251.4 million and missed the Zacks Consensus Estimate of $254 million. For full year 2011, total revenues increased 10.8% year over year to $968.7 million.

Same-store quarterly rental revenues increased 6.2% year over year due to a 5.8% rise in average rental rates and 0.4% increase in economic occupancy. Same-store operating expenses decreased 1.8% during the quarter compared with the year-ago period, while net operating income (NOI) increased 10.1% year over year.

For fiscal 2011, same-store rental revenues increased 5.1% year over year. Same-store operating expenses decreased 1.4% during the year compared with the previous year, while NOI increased 8.4% year over year.

The company started four new development projects during the quarter totaling 1,644 apartment homes for an estimated cost of $473.6 million. At the same time, the company started seven new redevelopment projects during the quarter totaling 1,404 apartment homes for an estimated cost of $51.6 million. AvalonBay also acquired four land parcels for $76.7 million.

During the quarter, AvalonBay sold three properties: Avalon at Rock Spring in Bethesda, Maryland; Avalon at Cameron Court, in Alexandria, Virginia; and Avalon at Stratford Green, in Bloomingdale, Illinois. The properties totaling 1,038 apartment units were sold for $258.5 million. Also during the quarter, AvalonBay Value Added Fund, L.P., a private discretionary real estate investment vehicle in which the company holds an equity interest of approximately 15%, sold Avalon Columbia in Columbia, Maryland, containing 170 apartment units for $34.7 million.

At the same time, AvalonBay Value Added Fund II, L.P. – a private, discretionary real estate investment vehicle in which it holds an equity interest of approximately 31%, acquired Highlands at Rancho San Diego, a garden style community consisting of 676 apartment homes in San Diego, California, for $124.0 million.

At year-end 2011, AvalonBay had $690.3 million of unrestricted cash and cash in escrow. In addition, the company had full availability under its $750 million unsecured credit facility. The company declared a first quarter 2012 dividend of $0.97 per share – an 8.7% increase over the prior quarterly dividend of $0.8925 per share.

With the gradual improvement in apartment fundamentals and continued economic growth in 2012, AvalonBay expects FFO for first quarter 2012 in the range of $1.20 to $1.24, while FFO for full year 2012 is expected in the range of $5.25 to $5.55, which represents an 18.2% increase over full year 2011.  

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 #3 Rank for Apartment Investment & Management Co. (AIV), one of the competitors of AvalonBay.