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AvalonBay Communities 4th-Quarter Profit Down 62% on Lower Asset Sales

01/30/2013 | 06:18pm US/Eastern
   By Debbie Cai 
 

AvalonBay Communities Inc.'s (>> AvalonBay Communities, Inc.) fourth-quarter income slumped 62% as the multifamily-housing real-estate investment trust recorded a decrease in real-estate asset sales and saw costs related to its acquisition of Archstone Enterprise LP, though rental revenue grew.

For the current quarter, AvalonBay said Wednesday it expects a per-share loss in a range of $1.27 to $1.31, and funds from operations, or FFO--a key profitability metric in the sector--to be a loss in a range of 62 cents to 66 cents a share. The company said its outlook includes an expected cash charge related to its Archstone Enterprise LP acquisition.

For the new year, the REIT forecasts per-share earnings of $2.28 to $2.64 and FFO of $4.11 to $4.47 a share.

AvalonBay, one of the largest apartment operators in the U.S. and known for upscale developments, has seen its profits surge in recent quarters as a lackluster housing market has made renting attractive, driving up occupancy and rents. In the latest quarter, economic occupancy--the level of total possible revenue remaining after stripping out vacancy loss--edged up 0.3%, while the average rental rates increased 4.7%.

In November, AvalonBay and Equity Residential (>> Equity Residential) said they plan to acquire Archstone, a portfolio of apartment properties, from Lehman Brothers Holdings Inc. for around $6.5 billion in cash and stock. Equity Residential will acquire about 60% of Archstone's assets and liabilities, while AvalonBay will acquire roughly 40%.

"Our fourth quarter results capped a year of solid performance marked by our second consecutive year of double-digit FFO growth," AvalonBay Chief Executive and President Tim Naughton said."We expect apartment fundamentals to remain healthy in 2013 and in anticipation of continued growth in 2013 from our development platform, our current communities and the addition of the Archstone portfolio, our Board approved a 10.3% increase to our quarterly dividend."

The REIT has shifted its strategy, separating into three brands that include upscale units, moderately priced suburban homes and a segment geared to younger renters in urban areas. The Pacific Northwest and Northern California regions again showed the biggest jumps in rental revenue for the latest quarter.

In the latest quarter, AvalonBay reported a profit of $122.4 million, or $1.19 a share, down from $323.1 million, or $3.38 cents a share, a year earlier. FFO were up at $1.27 a share, from $1.19 a share. The latest period included Archstone acquisition-related costs of 16 cents a share.

The company in October had projected per-share earnings of $1.34 to $1.39, and FFO of $1.40 to $1.45 a share.

AvalonBay recorded a gain on the sale of real-estate assets of $51.3 million, down from $273.4 million a year earlier.

Rental revenue climbed 5% to $194.3 million, though it was short of analysts' estimates of $275 million.

Shares slid $2.3% to close at $135.64 on Wednesday and were unchanged after hours. The stock is down 7.2% over the past six months.

Write to Debbie Cai at debbie.cai@dowjones.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

Stocks mentioned in the article : AvalonBay Communities, Inc., Equity Residential
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