AvalonBay Reports Jump in FFO as Apartment Rents Increase
April 27, 2011, 4:37 PM EDTBy Oshrat Carmiel
(Updates with comment from analyst in third paragraph.)
April 27 (Bloomberg) -- AvalonBay Communities Inc., the second-largest publicly traded U.S. apartment owner, said first- quarter funds from operations climbed as rising demand helped the landlord increase rents.
FFO rose to $93.5 million, or $1.08 a share, from $79.3 million, or 96 cents, a year earlier, the Alexandria, Virginia- based real estate investment trust said in a statement today. Analysts projected $1.05 a share, the average of 20 estimates in a Bloomberg survey. FFO is a measure of cash flow used by REITs.
“It’s higher rents and it’s contributions from development projects that are coming on line,” Haendel St. Juste, a New York-based REIT analyst at Keefe, Bruyette & Woods Inc., said in an interview before the report. “You’re not only full, or close to full, but you’re full enough to be pushing rent increases.”
Landlords have been able to boost leasing rates as home ownership sits at a 13-year low and an improving economy spurs more people to move out of shared residences. U.S. apartment rents climbed almost 4.7 percent in the 12 months through February, the biggest increase since the third quarter of 2006, according to Axiometrics Inc., a Dallas-based research company.
U.S. apartment vacancies dropped to the lowest in almost three years in the first quarter as a weak homebuying market fueled rental demand, property-research firm Reis Inc. said on April 6. The vacancy rate declined to 6.2 percent from 8 percent a year earlier.
New Communities
AvalonBay completed development on three communities in 2010, totaling about 1,260 apartments, according to a regulatory filing. Avalon Fort Greene, a 631-unit building in New York’s Brooklyn borough that was completed in the fourth quarter, was 90 percent occupied as of Dec. 31. Avalon Walnut Creek, a 418- apartment complex completed last quarter near Oakland, California, was 73 percent full, the company said.
“Now is a very good time to be delivering apartment product,” said St. Juste, who has an “outperform” rating on AvalonBay. “Between this year and next year the number of apartments taken out of service will be more than what will be added to the marketplace.”
AvalonBay started work on about $667 million in new developments in 2010, the company said in a March presentation. St. Juste estimates that the REIT will end 2011 with $1.5 billion in projects under development, according to a February report.
2011 Forecast
The company expects to meet or exceed the high end of its earlier forecast for 2011 funds from operations, according to today’s statement. In February, AvalonBay predicted full-year FFO of $4.50 to $4.75 a share, compared with $4 in 2010.
“Our operating results reflect strengthening apartment fundamentals that accelerated during the quarter,” Chief Executive Officer Bryce Blair said in the statement. “Job growth, particularly among young workers, is driving higher rental demand while new supply remains muted. We expect fundamentals will continue to accelerate during the year.”
Funds from operations excludes depreciation and gains or losses from property sales, among other items. The measure doesn’t conform to generally accepted accounting principles.
AvalonBay reported earnings after the close of regular U.S. trading. The shares rose 79 cents to $126.63 as of 4:15 p.m. in New York Stock Exchange composite trading. They climbed 28 percent in the past 12 months, compared with the 30 percent advance in the Bloomberg REIT Apartment Index of 13 companies.
(AvalonBay will hold a conference call tomorrow at 1 p.m. New York time. Dial 1-877-510-2397 or go to www.avalonbay.com/earnings.)
--Editors: Kara Wetzel, Christine Maurus
To contact the reporter on this story: Oshrat Carmiel in New York at ocarmiel1@bloomberg.net.
To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net
