Bloomberg News

AvalonBay FFO Climbs 27 Percent as Apartment Demand Rises

October 31, 2011

(Updates with rental revenue in sixth paragraph, forecast in seventh.)

Oct. 31 (Bloomberg) -- AvalonBay Communities Inc., the second-largest publicly traded U.S. apartment owner, said funds from operations climbed 27 percent as an increase in demand allowed landlords to boost rents.

FFO, which gauges a property company’s ability to generate cash, rose to $107.6 million, or $1.17 a share, from $84.5 million, or 98 cents, a year earlier, the Alexandria, Virginia- based real estate investment trust said in a statement today. Analysts expected FFO of $1.18 a share, the average of 21 estimates in a Bloomberg survey.

Apartment owners are benefiting as mounting foreclosures and stricter mortgage standards erode the confidence of would-be homebuyers. U.S. multifamily vacancies fell to a five-year low in the third quarter, spurring landlords to increase rents, according to property-research company Reis Inc. AvalonBay plans to build to capitalize on apartment demand.

“They have a very robust development pipeline,” Paula Poskon, an analyst at Robert W. Baird & Co. with an “outperform” rating on AvalonBay, said in a telephone interview before the results were issued. “It’s the largest in the sector.”

The average U.S. monthly effective rent, or what tenants paid after landlord giveaways are included, rose to $1,004 in the third quarter from $981 a year earlier, New York-based Reis said on Oct. 6. The vacancy rate dropped to 5.6 percent, the lowest since the third quarter of 2006.

Rental Revenue

AvalonBay’s rental revenue rose 5.8 percent to $179.1 million. Net operating income from continuing operations rose 15 percent to $166.2 million.

The company reduced its forecast for full-year FFO per share to $4.57 to $4.61, partly because of an August stock sale. In July, AvalonBay projected 2011 FFO per share of $4.60 to $4.75.

AvalonBay reported earnings after the close of regular U.S. trading. The shares rose 0.5 percent to $133.69 today in New York. They have gained 19 percent this year, compared with a 13 percent advance in the Bloomberg REIT Apartment Index of 16 companies.

Equity Residential, the largest apartment REIT, last week reported an 18 percent gain in third-quarter FFO.

(AvalonBay will hold a conference call tomorrow at 1 p.m. New York time. See AVB US <Equity> EVT <GO>.)

--Editors: Daniel Taub, Christine Maurus

To contact the reporter on this story: Brian Louis in Chicago at blouis1@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net


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