Yahoo Finance What to Expect From AvalonBay (AVB) This Earnings Season?
AvalonBay Communities, Inc. AVB, a leading real estate investment trust (REIT) specializing in the development, acquisition and management of multifamily properties, is set to announce its first-quarter 2024 results after the closing bell on Apr 25.
In the last reported quarter, this residential REIT delivered a surprise of 0.37% in terms of core funds from operations (FFO) per share. The quarterly results reflected a year-over-year increase in same-store residential rental revenues.
Over the last four quarters, AvalonBay surpassed the Zacks Consensus Estimate on each occasion, the average beat being 1.16%. The graph below depicts the surprise history of the company:
AvalonBay Communities, Inc. Price and EPS Surprise
AvalonBay Communities, Inc. price-eps-surprise | AvalonBay Communities, Inc. Quote
As we approach the release of AvalonBay's first-quarter 2024 earnings report, it is important to examine how this residential REIT is likely to have performed amid the current market conditions.
US Apartment Market in Q1
Per RealPage data, although there was a significant recovery in apartment demand in the first quarter, it was not enough to keep up with the huge amounts of new supply, with the onslaught affecting occupancy and rent growth.
The United States absorbed 103,826 apartment units on net in the first quarter, pushing the annual demand figure to 317,241 units in the 12-month period. This is about 20% higher than a typical annual absorption rate from the 2010s decade, the report noted. A combination of elements like continuing wage increases, solid job growth and favorable demographic trends is driving this surge in demand. Moreover, move-outs from apartment units into single-family homes remain much lower.
However, there were massive amounts of new supply, with 135,652 apartment units being completed in the first quarter, bringing the total number of new multifamily units delivered to 479,367 in the year-ending first quarter of 2024.
With supply outpacing demand, apartment occupancy averaged 94.1% nationwide as of March, down 0.6% year over year, though lower than typical but not significantly down. Apart from the occupancy rate, operators’ pricing power was also affected, with first-quarter annual effective rent change being up 0.2%, and monthly effective rent change being north 0.4%. The average effective rent was $1,813.
Projections
AvalonBay's strategy of developing, acquiring and redeveloping multifamily properties in high-growth markets has served it well over the years. AVB’s focus on high-quality apartment communities in some of the most desirable neighborhoods allows it to maintain strong occupancy rates and command premium rents.
AvalonBay is banking on technology, scale and organizational capabilities to drive innovation and margin expansion in its portfolio. Its emphasis on long-term value creation and risk management has also contributed to its solid financial performance and ability to generate consistent cash flow. It is also likely to retain its balance sheet strength. However, rising supply is likely to have played a spoilsport.
In March, AvalonBay came up with an announcement of a projected outperformance of its first-quarter same-store residential revenue growth on better-than-expected occupancy and lower-than-expected uncollectible lease revenues. Specifically, AvalonBay noted that it expects its same-store residential revenues for the first quarter to increase 3.7%-3.8% over the prior-year period. This range at the midpoint is roughly 45 basis points higher than the company’s earlier expectation on Jan 31, 2024.
Economic occupancy for its same-store residential communities of 96% in February increased from 95.8% in the prior month. AvalonBay had recorded economic occupancy of 95.6% in the fourth quarter.
The like-term effective rent change for same-store residential communities was 2.4% in February, up from 1.3% in January as well as in the fourth quarter of 2023. The like-term effective rent change for renewals was 4.5% for both January and February, up from 4.2% for the fourth quarter. The new move-in like-term effective rent change was negative 0.1% in February compared with a negative 2% in January and a negative 1.9% in the fourth quarter.
For March and April 2024, renewal offers delivered to residents were at an average increase of 5% over existing lease agreements.
We expect same-store net operating income to increase 1.6% year over year in the first quarter. Meanwhile, we project economic occupancy of 95.9% in the quarter, while same-store average rental rates are projected to increase 1.3% year over year.
The Zacks Consensus Estimate of $706.03 million for first-quarter revenues suggests a 4.64% year-over-year increase.
For the first quarter of 2024, AvalonBay expects core FFO per share in the range of $2.56-$2.66.
Before the first-quarter earnings release, the company’s activities were not adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the quarterly core FFO per share has been revised a cent down to $2.64 over the past week. However, this suggests year-over-year growth of 2.72%.
Here Is What Our Quantitative Model Predicts:
Our proven model predicts a surprise in terms of FFO per share for AvalonBay this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an FFO beat, which is the case here.
AvalonBay currently carries a Zacks Rank of 3 and has an Earnings ESP of +0.59%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Other Stocks That Warrant a Look
Here are three other stocks from the broader REIT sector — Welltower Inc. WELL and Public Storage PSA and Invitation Homes Inc. INVH — you may want to consider as our model shows that these also have the right combination of elements to report a surprise this quarter.
Welltower is scheduled to report quarterly numbers on Apr 29. WELL has an Earnings ESP of +1.47% and a Zacks Rank of 3 presently. You can see the complete list of today’s Zacks #1 Rank stocks here.
Public Storage is slated to report quarterly numbers on Apr 30. PSA has an Earnings ESP of +1.12% and carries a Zacks Rank of 3 presently.
Invitation Homes Inc. is scheduled to report quarterly numbers on Apr 30. INVH has an Earnings ESP of +0.77% and a Zacks Rank of 3 presently.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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AvalonBay Communities, Inc. (AVB) : Free Stock Analysis Report
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Invitation Home (INVH) : Free Stock Analysis Report
Welltower Inc. (WELL) : Free Stock Analysis Report
