AvalonBay Communities, Inc.’s AVB first-quarter 2018 core funds from operations (FFO) per share of $2.18 came in line with the Zacks Consensus Estimate. The company’s core FFO per share also recorded 4.3% growth from the year-ago figure of $2.09.
Total revenues of $560.8 million increased 7.4% year over year, as revenues from development communities and stabilized operating communities recorded growth. The revenue figure also came in higher than the Zacks Consensus Estimate of $558.5 million.
Results highlight growth in average rental rates. However, occupancy level declined marginally, while operating expense flared up due to property taxes, payroll and insurance costs.
Quarter in Detail
For the reported quarter, average rental rates were up 2.5% year over year, while economic occupancy edged down 0.1% from the year-ago quarter.
Revenues from established communities — those that have stabilized operations as of Jan 1, 2017, are neither executing nor planning any significant redevelopment work, and are not held for sale or planned for disposition within the current year — improved 2.4% year over year, indicating increase in average rental rates but partially offset by a decline in economic occupancy.
However, operating expenses for established communities escalated 5.3% on a year-over-year basis. Consequently, NOI from established communities inched up 1.2 % year over year to around $295.4 million.
Notably, during the first quarter, the company accomplished the development of three communities, for an aggregate total capital cost of $287.0 million. These communities comprise a total of 770 apartment homes. Further, the company purchased two land parcels for future development, for a total investment of $57.08 million. The company intends to commence construction of apartment communities on this land this year.
As of Mar 31, 2018, AvalonBay had 18 communities under construction (expected to contain in total 5,774 apartment homes and 97,000 square feet of retail space), which are anticipated to be accomplished for an estimated total capital cost of $2.65 billion. This includes the company’s share of communities being developed through joint ventures.
Liquidity Position
As of Mar 31, 2018, AvalonBay had no borrowings outstanding under its $1.5-billion unsecured credit facility. The company had around $271.4 million in unrestricted cash and cash in escrow as of that date. In addition, the company’s annualized net debt-to-core EBITDA for first-quarter 2018 was 5.1 times.
Outlook
For second-quarter 2018, AvalonBay expects core FFO per share of $2.16-$2.22. The Zacks Consensus Estimate for the same is currently pegged at $2.21.
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. Moreover, stellar job growth in recent months indicates more household formations and raises expectations for higher apartment demand during the peak leasing period.
Nevertheless, there is presence of elevated supply in a number of the company’s markets. In addition, high concession activity amid elevated supply remains a concern. Hence, growth in its stabilized portfolio is likely to remain modest in the upcoming period. Rate hike remains another 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.
AvalonBay Communities, Inc. Price, Consensus and EPS Surprise
AvalonBay Communities, Inc. Price, Consensus and EPS Surprise | AvalonBay Communities, Inc. Quote
We now look forward to the earnings releases of other REITs like Alexandria Real Estate Equities, Inc. ARE, Essex Property Trust Inc. ESS and Regency Centers Corporation REG. Alexandria and Regency Centers are scheduled to release results on Apr 30, while Essex Property is slated to report its numbers on May 2.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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