AvalonBay Communities Inc. (AVB), a leading real estate investment trust (REIT), reported fiscal 2010 third quarter funds from operations (FFO) of $84.5 million or 98 cents per share, compared with $87.7 million or $1.09 in the year-earlier quarter. Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income. The quarter’s FFO beat the Zacks Consensus Estimate by 2 cents.
Total revenues during the reported quarter increased 1.6% year over year to $227.7 million and were in line with the Zacks Consensus Estimate of $223 million. Same-store quarterly rental revenues increased 0.2% year over year due to a 0.4% rise in average rental rates, partially offset by 0.2% decrease in economic occupancy. Same-store operating expenses increased 3.3% during the quarter compared with the year-ago period, while net operating income (NOI) decreased 1.5% year over year.
The company started five new development projects during the quarter totaling 920 apartment homes for an estimated cost of $232.5 million. AvalonBay completed the redevelopment of Avalon Burbank, California, which included 400 apartment homes, for a total cost of $23.4 million. The company also started redevelopment work on Avalon at Decoverly in Rockville during the quarter, which contains 564 apartment homes, at a total estimated cost of $7.8 million.
Subsequent to the end of the quarter, the company acquired two apartment homes in Maryland for $146 million. AvalonBay acquired GroveParkapartment, a 684-unit garden-style residential community in Gaithersburg, Maryland, for $101 million. The company also acquired Briarwood apartment, a 348-unit residential community in Owings Mills, Maryland, for $45 million. The acquisition is part of the long-term strategy of the company to own assets in high barrier-to-entry markets in the Northeast, Mid-Atlantic, Midwestand West Coast regions of the U.S., where there is very limited new apartment construction.
During the quarter, AvalonBay sold approximately 76,700 common shares at an average price of $100.41 for net proceeds of $7.6 million. At quarter-end, AvalonBay had $407.1 million of unrestricted cash and cash in escrow. In addition, the company had full availability under its $1 billion unsecured credit facility, the maturity of which was extended by a year to November 2011.
With the gradual improvement in apartment fundamentals, AvalonBay expects FFO for fourth quarter 2010 in the range of 98 cents to $1.02, while for full year 2010, FFO is expected in the range of $3.97 to $4.01. We maintain our Neutral rating on the stock, which presently has a Zacks #3 Rank that translates into a short-term “Hold” rating.
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