AvalonBay Falls After Forecast Below Analysts’ Estimates

AvalonBay Communities Inc., the second-largest publicly traded U.S. apartment owner, fell the most in more than a year after forecasting earnings for this year that are below analysts’ expectations.

Funds from operations for 2013 probably will be $4.17 to $4.47 a share, down 19 percent from last year based on the midpoint of the range, the Arlington, Virginia-based real estate investment trust said in a statement yesterday after the close of regular U.S. trading. The average estimate of 18 analysts in a Bloomberg survey is for FFO, a cash-flow measure used by REITs, of $6.20 a share.

“Rental housing has benefited from a unique combination of historically low supply, modest job and economic growth, a sluggish for-sale market and fragile consumer confidence,” AvalonBay Chief Executive Officer Timothy Naughton said on a conference call with analysts. “While we might expect certain aspects of this pattern to continue into this year, there are likely to be some important differences that will impact fundamentals and the longer-term outlook for our business.”

A recovery in U.S. home sales is slowing the increase in rents across the country and helping drive down shares of apartment REITs. While rents are likely to keep rising through 2017, the rate of annual growth peaked in July 2011 at 5.3 percent, according to research firm Axiometrics Inc.

Rent Growth

Rents probably will climb 3.6 percent this year, down from 3.8 percent in 2012, Dallas-based Axiometrics said in a report this month. Rent growth was 4.2 percent in 2011.

AvalonBay shares fell 4.4 percent to $129.78 today at the close in New York, the biggest decline since November 2011.

About 16 percent of AvalonBay tenants moved out to buy homes in the fourth quarter, an increase of 80 basis points from a year earlier, Sean Breslin, AvalonBay’s executive vice president of investment and asset management, said on the call. A basis point is 0.01 percentage point.

In Boston, 24 percent of tenants moved out to become homeowners in the quarter, compared with a long-term average of 20 percent, Breslin said.

The company said yesterday that it expects 2013 net operating income from apartment buildings open at least a year to increase 4 percent to 5.5 percent, compared with growth of 7.6 percent last year.

“The deceleration in the same-store guidance could scare investors,” Rod Petrik, an analyst with Stifel Nicolaus & Co. in Baltimore, said in a note to investors today. He has a hold recommendation on AvalonBay shares.

A Bloomberg index of 16 apartment REITs has fallen 9.4 percent since July 17, when the group hit a post-financial crisis high. The gauge had more than tripled since a post-crisis low in March 2009 amid rising rents and falling vacancies caused by the surge in home foreclosures.

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