Bloomberg News

AvalonBay FFO Rises 8.7% as Apartment Demand Spurs Higher Rents

July 27, 2011

July 27 (Bloomberg) -- AvalonBay Communities Inc., the second-largest publicly traded U.S. apartment owner, said funds from operations climbed 8.7 percent in the second quarter as rising demand allowed the landlord to increase rents.

FFO, which gauges a property company’s ability to generate cash, rose to $99.9 million, or $1.13 a share, from $87.8 million, or $1.04, a year earlier, the Alexandria, Virginia- based real estate investment trust said in a statement today. Analysts expected FFO of $1.12 a share, the average of 21 estimates in a Bloomberg survey.

Demand for apartments has soared in the U.S. as foreclosures forced people out of their homes and prospective buyers found it harder to get mortgages. Rental supply remains tight, with a surge of multifamily construction not expected to be complete for at least two years, said Paula Poskon, a REIT analyst at Robert W. Baird & Co. in McLean, Virginia, with an “outperform” rating on AvalonBay.

“It’s going to be a while before that new supply rears its ugly head in a way that really meaningfully diminishes the apartment REITs’ pricing power,” Poskon said in an interview before earnings were announced. “So I think they’ve got a good run here through 2013.”

Vacancies Decline

U.S. apartment vacancies dropped in the second quarter to 6 percent, the lowest in more than three years, Reis Inc. said in a July 7 report. Effective rents, or what tenants actually pay after perks such as a free month, climbed in 80 of the 82 metropolitan areas Reis surveyed, to an average $997 a month from $974 a year earlier.

AvalonBay cut its forecast for full-year funds from operations to $4.60 to $4.75 a share from a projection last month of $4.70 to $4.85. The lowered outlook reflects the planned sale of an operating community that is now “unlikely” to be completed before the end of the year, the company said.

AvalonBay reported earnings after the close of regular U.S. trading. The shares fell 2.4 percent to $134.36 in New York Stock Exchange composite trading today. They gained 26 percent in the past 12 months, compared with a 31 percent advance in the Bloomberg REIT Apartment Index of 14 companies.

FFO, used by REITs, doesn’t conform to generally accepted accounting principles.

(AvalonBay will hold a conference call tomorrow at 1 p.m. New York time. To monitor, dial 1-877-510-2397 or go to www.avalonbay.com/earnings.)

--Editors: Christine Maurus, Daniel Taub

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


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