On the firm’s Q4 earnings call, Tim Naughton, chairman and CEO of AvalonBay Communities, said that “so long as we continue providing good disclosure that allows investors to assess our business in a detailed way, which we believe we do, moving away from quarterly guidance is better aligned with how we think about the business and will help discourage undue focus on short-term quarterly results. We will, however, continue to update our annual guidance at the second quarter, concurrent with our internal mid-year reforecasting process.”
Highlights for the quarter and the year include, core FFO growth of 2.7% in Q4 and 4.4% for the full year which was 80 basis points above our initial outlook, he explained, with same-store revenue growth came in at 2.7% for the quarter or 2.8% once you include redevelopment. “For the full year, same-store revenue growth ended at 2.5% which was equal to what we saw in 2017.”
The REIT completed $740 million of new development for the year at a 6.4% initial projected stabilized yield and started another $720 million. And lastly, the company raised $1.7 billion in external capital this year, this past year, principally through asset sales at an average initial cost of 4.7%, with more than half of that being raised in Q4, mostly from the closing of our New York JV where we contributed an 80% interest in five stabilized assets to the newly formed venture.
“Same-store revenue growth for the year was consistent with 2017. However, some region saw improvement while others actually decelerated from the prior year. Specifically, Boston and Northern California showed significant improvement from 2017, up 60 basis points and 130 basis points respectively, while Seattle decelerated by almost 300 bps as that market began to feel the impact of several years of continuous and elevated supply.”
While same-store revenue growth was equal to that experienced in 2017, he added, the cadence of rent growth through the year was not. “We saw rent growth accelerate in the second half of the year, outpacing 2017 and Q3 and Q4 by 70 bps and 120 bps respectively benefiting from a strengthening economy towards the end of the year and a cooling for-sale housing market. This provides good momentum for our business going into 2019.”
Turning to the development portfolio, he explained that the REIT continues to see a meaningful contribution to core FFO growth from stabilizing new development, although at a lesser rate than in years past as the company delivered only about a third of the homes as it did in 2017 and completed about half as much in capitalized costs as it had on average in the prior four years. “With our starts down by about 40% over the last couple years, we will generate less growth from external investment over the next two years to three years than we did in the early and middle part of this cycle when development economics were particularly compelling.”