July 30, 2008 / 11:15 PM / in 10 years

Location key as apartment owners post strong results

NEW YORK (Reuters) - Two of the biggest U.S. apartment owners reported strong results, despite the absence of a strong job market that often fuels their growth.

AvalonBay Communities Inc (AVB.N), which has expanded in highly constrained markets was able to not only push rents higher during the quarter, but was confident enough to raise its forecast for the year. Meanwhile, its larger rival, Equity Residential (EQR.N), trimmed its outlook.

The overall U.S. apartment sector has benefited from the collapse of the single-family housing market. This has helped offset lower job growth, the traditional apartment demand growth generator.

Equity Residential reported second-quarter FFO available to common shareholders of $187.5 million, or 64 cents a share, up 1.5 percent from a year earlier. The result beat Wall Street’s estimate of 62 cents per share and was within the company’s forecast of 61 cents to 65 cents per share.

The increase in FFO was due to higher net operating income and more favorable interest rates that were offset by higher taxes and weakness in condominium operations.

Chicago-based Equity Residential, founded by its Chairman and real estate mogul Sam Zell lowered the top end of its forecast for the year to a range of $2.45 to $2.55 per share from a prior forecast of $2.45 to $2.60 per share.

    AvalonBay said higher rents helped propel second-quarter FFO up 4.2 percent $97.9 million, or $1.26 per share, beating the $1.24 per share analysts on average had expected, according to Reuters Estimates. The company had forecast $1.22 and $1.26 per share.

    The company, based in Alexandria, Virginia, raised its forecast by 3 cents a share to a range of $5.00 to $5.15, while analysts saw $4.96 per share. AvalonBay saw its strongest results generated from its properties in Northern California and the Pacific Northwest.

    According to real estate research firm Reis Inc, U.S. apartment revenue grew 4.2 percent in the second quarter over the year-earlier period.

    The strongest apartment markets remain the Bay Area in California, Seattle and New York, which posted revenue growth that topped 6 percent. On the other hand, markets in the once- hot areas of the housing sector, such as Florida, Phoenix and the Inland Empire in California have been the weakest as they compete with condominiums for rent.

    Editing by Andre Grenon

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