April 28, 2011 / 12:50 AM / 8 years ago

Two big U.S. apartment owners raise the rent

NEW YORK (Reuters) - Two of the largest U.S. apartment owners posted higher funds from operations on Wednesday that met Wall Street expectations, fueled by higher rents, as the sector continues to be one of the brightest spots in commercial real estate.

Real estate investment trusts Equity Residential (EQR.N), whose chairman is real estate mogul Sam Zell, and AvalonBay Communities Inc (AVB.N) posted higher year-over-year revenue as stronger demand allowed them to raise rents.

Many Americans have soured on home ownership because tighter lending standards have made owning a home more difficult.

That has pushed down the U.S. apartment vacancy rate to 6.2 percent in the first quarter, a level unseen since 2008, according to real estate research firm Reis Inc.

“Job growth, particularly among younger workers is driving higher rental demand, while new supply remains muted,” AvalonBay Chief Executive Officer Bryce Blair said in a statement.

Apartment building owners, such as Equity Residential and AvalonBay have been able to fill their buildings and push rents higher, boosting their own bottom lines.

“The operating results were solid and reflective of an improving rental market,” Luis Sanchez, vice president of Adelante Capital Management, said.

For properties Equity Residential has operated for a year or more, average rent rose 3.6 percent to $1,400 and occupancy rose 95 percent from 94.6 percent a year earlier. Revenue was up 4 percent.

Its first-quarter funds from operations, or FFO, rose 15 percent, to $173.5 million, or 56 cents per share, compared with $150.5 million, or 51 cents per share, excluding one-time charges, a year ago.

It met the average of analysts’ forecasts, according to Thomson Reuters I/B/E/S.

FFO, a REIT performance measure, removes the profit-reducing effect depreciation has on earnings.

The Chicago-based company said it sold or is selling about $500 million of non-core properties, taking advantage of the rising prices for apartment buildings. That will mean less rent until the company buys more buildings, so it sees full-year FFO at the midpoint of its earlier forecast of $2.40 per share to $2.50 per share.

Virginia-based AvalonBay reported first-quarter FFO of $93.5 million, or $1.08 per share, up from $79.3 million, or 96 cents per share in the year-earlier quarter. Stripping out 3 cents a share for interest income associated with escrow funds, the results met Wall Street’s forecast of $1.05 per share.

For properties owned at least a year, rental revenue rose 3.7 percent as did average monthly rental rates, to $1,879. Occupancy was flat at 95 percent.

It sees full-year FFO meeting or exceeding its prior forecast for 2011 of FFO in the range of $4.50 to $4.75 per share. Analysts expect $4.64 per share.

The companies issued their quarterly reports after the close of the market.

Equity Residential shares closed up 0.2 to $59.26 on the New York Stock Exchange and were unchanged after hours.

AvalonBay shares closed up 0.6 percent to $126.63 and were unchanged after hours.

Reporting by Ilaina Jonas; editing by Carol Bishopric

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