AvalonBay (AVB) Tops Q4 FFO Estimates, Hikes Dividend Rate

AvalonBay Communities, Inc.’s AVB fourth-quarter 2019 core funds from operations (FFO) per share of $2.43 increased 5.2% year over year. The figure also surpassed the Zacks Consensus Estimate of $2.40.

Results reflect increase in average rental rates and economic occupancy. The residential REIT also announced a 4.6% increase in its quarterly dividend payout.

Total revenues of $593.6 million were up 2.6% year over year. However, the figure narrowly missed the Zacks Consensus Estimate of $594.1 million.

For 2019, the company’s reported core FFO per share of $9.34 increased 3.8% from $9.00 in the prior year and also beat the Zacks Consensus Estimate of $9.31. Total revenues of $2.3 billion rose 1.8% year on year.

Quarter in Detail   

In the reported quarter, revenues from established communities improved 2.5% year over year to $463.3 million. Results reflect a 2.4% increase in average rental rates and 0.1% growth in economic occupancy.

Operating expenses for established communities rose 2.6% on a year-over-year basis. Consequently, NOI from established communities increased 2.5% year on year to around $335.5 million.

During the fourth quarter, the company acquired Avalon Toscana in Margate, FL, comprising 240 apartment homes for $60.25 million. The company also acquired an unencumbered 265 apartment home community located in Cambridge, MA — AVA North Point. This property was previously held in an unconsolidated joint venture, in which the company had a 55% ownership stake. Thus, the company paid $71.28 million for its venture partner's 45% interest in the community.

Further, during the quarter, the company completed the development of three apartment communities — Avalon Boonton, in Boonton, NJ; Avalon Belltown Towers, in Seattle, WA; and
Avalon Saugus, in Saugus, MA — comprising a total of 904 apartment homes and 34,000 square feet of retail space, for a total capital cost of $333 million.

As of Dec 31, 2019, AvalonBay had 22 development communities under construction (expected to contain 6,960 apartment homes and 64,000 square feet of retail space). The estimated total capital cost at completion for these development communities is $2.54 billion at share.

Balance Sheet Position

As of Dec 31, 2019, AvalonBay did not have any borrowings outstanding under its $1.75-billion unsecured credit facility. The company had around $127.6 million in unrestricted cash and cash in escrow as of the same date. In addition, the company’s annualized net debt-to-core EBITDAre for the October-December quarter was 4.6 times.

Moreover, during the fourth quarter, the company issued 947,868 shares of common stock at a settlement price of $207.96 per share, generating net proceeds of $197.1 million. This was pursuant to the forward equity sale contract entered in September 2019.

Outlook

For 2020, the company expects core FFO per share in the range of $9.62-$10.02. The Zacks Consensus Estimate for the same is currently pinned at $9.84, which is well within this range.

The outlook is based on assumption for established communities’ revenue growth of 2.2-3.2%, operating expense increase of 1.3-2.3% and NOI expansion of 2.5-3.5%.

Dividend Hike

On Feb 5, AvalonBay’s board of directors declared first-quarter 2020 dividend of $1.59 per share. This marks a 4.6% increase from the prior quarterly dividend payout of $1.52 per share. The raised dividend will be paid on Apr 15, 2020, to common stockholders of record as of Mar 31, 2020.

In Conclusion

AvalonBay’s better-than-expected performance in the fourth quarter and dividend hike are encouraging. The company is anticipated to benefit from its high-quality assets in premium locations, favorable demographics, household formation and job-market growth. The company has a healthy balance sheet to support its growth endeavors. However, new apartment deliveries are likely to remain elevated in its markets in the near-to-mid term, curtailing robust growth in rent and occupancy level.

AvalonBay currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AvalonBay Communities, Inc. Price, Consensus and EPS Surprise

AvalonBay Communities, Inc. Price, Consensus and EPS Surprise

AvalonBay Communities, Inc. price-consensus-eps-surprise-chart | AvalonBay Communities, Inc. Quote

Performance of Other Reidential REITs

Equity Residential EQR reported fourth-quarter 2019 normalized FFO per share of 91 cents, surpassing the Zacks Consensus Estimate of 89 cents. Moreover, normalized FFO per share figure was 8.3% higher than 84 cents reported in the year-ago quarter. Results mirror improved same-store NOI and growth in average rental rate.

Essex Property Trust Inc. ESS reported fourth-quarter 2019 core FFO per share of $3.45, surpassing the Zacks Consensus Estimate of $3.42. The figure also improved 8.2% from the year-ago quarter tally of $3.19. Results of this residential REIT reflect improved net operating income from its communities, backed by high occupancy level.

Mid-America Apartment Communities, Inc. MAA, commonly referred to as MAA, reported fourth-quarter 2019 FFO per share of $1.68, surpassing the Zacks Consensus Estimate of $1.63. Further, the reported tally was higher than the prior-year quarter’s $1.55. Quarterly results reflect growth in same-store NOI and rise in average effective rent per unit for the same-store portfolio.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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