AvalonBay (AVB) Beats Q4 FFO Estimates, Raises Dividend

AvalonBay Communities, Inc.’s (NYSE:AVB) fourth-quarter 2017 core funds from operations (FFO) per share of $2.25 beat the Zacks Consensus Estimate by a penny. The company’s core FFO per share also recorded 6.1% growth from the year-ago figure of $2.12.

Total revenues of $555.3 million increased 7.1% year over year as revenues from development communities and stabilized operating communities recorded growth. The figure also compared favorably with the Zacks Consensus Estimate of $555.2 million.

Results highlight growth in average rental rates. Additionally, economic occupancy managed to increase slightly in the quarter. The company also announced a hike in quarterly dividend.

For full-year 2017, core FFO per share came in at $8.62, up 5.3% from the prior-year tally of $8.19. This was backed by 5.5% year-over-year growth in total revenues to nearly $2.2 billion.

Quarter in Detail

For the reported quarter, average rental rates were up 2.1% year over year, while economic occupancy inched up 0.1% from the year-ago quarter.

Revenues from established communities — those that stabilized operations as of Jan 1, 2016, are neither executing nor planning any significant redevelopment work and are not held for sale or planned for disposition within the current year — improved 2.2% year over year, indicating increase in average rental rates and economic occupancy.

However, operating expenses for established communities flared up 2.7% on a year-over-year basis. Consequently, NOI from established communities rose 2.0% year over year to around $282.7 million.

Notably, in the fourth quarter, the company acquired 850 Boca (containing 370 apartment homes), in Boca Raton, FL, for $138.0 million. The purchase denoted the company's entry into the Southeast Florida metropolitan region.

As of Dec 31, 2017, AvalonBay had 21 communities under construction (expected to contain in total 6,544 apartment homes and 97,000 square feet of retail space), which are anticipated to be accomplished for an estimated total capital cost of $2.9 billion. This includes the company’s share of communities being developed through joint ventures.

Liquidity Position

As of Dec 31, 2017, AvalonBay had no borrowings outstanding under its $1.5-billion unsecured credit facility. The company had around $201.9 million in unrestricted cash and cash in escrow as of that date. In addition, the company’s annualized net debt-to-core EBITDA for fourth-quarter 2017 was 5.0 times.

Outlook

For first-quarter 2018, AvalonBay expects core FFO per share in the range of $2.14-$2.20. The Zacks Consensus Estimate for the same is currently pegged at $2.23.

For full-year 2018, the company projects core FFO per share in the band of $8.73-$9.13. The Zacks Consensus Estimate for the same is currently pegged at $ 9.09.

Dividend Hike

AvalonBay announced a first-quarter dividend of $1.47 per share, denoting an increase of 3.5% from the prior quarterly dividend. The new dividend will be paid on Apr 16 to stockholders of record on Mar 29, 2018.

In Conclusion

AvalonBay’s better-than-expected performance in the fourth quarter and the hike in dividend look encouraging. The company 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. Nevertheless, there is presence of elevated supply in a number of the company’s markets. 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.

In the past month, shares of AvalonBay have depreciated 4.5%, outperforming the 4.6% loss incurred by its industry.

We now look forward to the earnings releases of other REITs like UDR Inc. (NYSE:UDR) , Essex Property Trust Inc. (NYSE:ESS) and Regency Centers Corporation (NYSE:REG) . UDR Inc. and Essex Property are scheduled to release results on Feb 6 and 7, while Regency Centers is slated to report its numbers on Feb 8.

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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