The disaster that is the home ownership market just keeps going on and on. That’s bad news for many players in the residential real estate industry. But it’s good news for real estate investment trust AvalonBay Communities (AVB) the country’s second-biggest publicly traded apartment building owner.
As home prices continue to drop, rental rates are rising. In March, effective rents, which exclude concessions, rose at an average annual rate of 5.02 percent nationally, according to Axiometrics. The occupancy rate increased to 93.5 percent from 92.3 percent a year earlier.
As of March 31, AvalonBay owned all or part of 187 communities totaling 55,027 apartments in 10 states and Washington, D.C. Its buildings sit in choice locations, with 22 percent in the New York City metropolitan area, 22 percent in the Boston area, 17 percent in the Washington area, and 15 percent in the San Francisco area, according to Morningstar.
The numbers keep growing. Analysts estimate the company will spend more than $600 million on construction this year, following $667 million last year.
In the first quarter, AvalonBay’s funds from operations (FFO), the commonly-used measure of cash flow for REITs, jumped 18 percent to $93.5 million from $79.3 million a year earlier, exceeding analysts’ expectations. AvalonBay raised its rents amid strong demand for its apartments.
“Our operating results reflect strengthening apartment fundamentals that accelerated during the quarter,” AvalonBay CEO Bryce Blair said in a statement accompanying the earnings report.
“Job growth, particularly among younger workers, is driving higher rental demand while new supply remains muted. We expect fundamentals will continue to accelerate during the year.”
Analysts are optimistic about the company’s future. “We think AVB will take advantage of high occupancy levels to push rents more aggressively in 2011,” writes Standard & Poor’s analyst Roy Shepard.
“During the first quarter, average rental rates rose 3.7 percent, and we estimate a gain of about 5 percent for the full year.”
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