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AVB or MAA: Which Residential REIT Will Deliver Better Q4 Earnings?

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The constituents of the REIT and Equity Trust - Residential are expected to have witnessed choppiness in rental housing demand, especially in the higher-cost urban and coastal markets, and higher residential mobility amid the remote-working environment, low mortgage rates and elevated deliveries in fourth-quarter 2020.

Moreover, residential landlords have seen extension of eviction memorandums as well as government regulation in some of the major markets relating to rent setting and rent collections such as rent deferrals, rent freezes, repayment extensions, and prohibitions on lease terminations. This has made rent collection and eviction of delinquent tenants challenging.

Considering the aforementioned factors, we remain a bit skeptical about Mid-America Apartment Communities, Inc. (MAA - Free Report) , commonly known as MAA, and AvalonBay Communities, Inc. (AVB - Free Report) , which are slated to report fourth-quarter and 2020 results on Feb 3.

Q4 Projections

The U.S. apartment market witnessed solid leasing activity in the fourth quarter of 2020, per a report from the real estate technology and analytics firm RealPage . Typically, demand remains low during the October-December quarter but the coronavirus pandemic pushed the demand to the latter half of the year from the usually strong second quarter. Particularly, in the last three months of 2020, absorptions amounted to about 79,000 units.

However, the recovery in demand was uneven, with the rebound being strong in the Sun Belt markets and the sub-urban ones, while considerable move-outs and sluggish demand were noticed in gateway markets.

Though occupancy level held up well in December, rent changes varied across metros, with select big cities witnessing significant price reductions, while in a number of individual metros rents continue to rise or have been steady, per a report from RealPage. Particularly, in the country’s 150 largest metros, December occupancy was 95.5%, which is just a tad below the year-earlier figure of 95.6%. Effective asking rents, on a nationwide basis, as of December, were off 1% from the 2019-end figure, with the December price point coming at $1,410 per month.

Moreover, the pandemic has strained the rent-paying capabilities of residential tenants. Per a RealPage report, rent collections have been disappointing in the lower-tier properties. Despite federal coronavirus relief measures, which offered the much-needed stimulus checks and rental assistance, rent collections have lagged in expensive metros.

Particularly, people continued to flee from dense urban and expensive coastal cities to pro-business, lower-taxed, more affordable Southeast and Southwest ones in the fourth quarter. These factors have elucidated the stark disparity of the impacts on demand and rent growth between the urban/suburban and coastal/Sun Belt markets due to urban flight and the pandemic.

Here's How AVB & MAA Looks Just Ahead of Q4 Earnings

Mid-America Apartment: The company’s fourth-quarter results are expected to likely reflect growth in revenues. Funds from operations (FFO) per share are expected to reflect a year-over-year decline.MAA's suburban Sun Belt portfolio has been constructive in the fourth quarter.

Urban exodus and employment gains in the pro-business Sun Belt region are expected to have increased the desirability of MAA markets, thereby, spurring the primary renter demand and leasing across its footprint.Moreover, the residential REIT has been focusing on redevelopment initiatives and smart-home installations. This is expected to have supported it to generate accretive returns and boost earnings from the existing asset base.

Yet, higher demand for new home purchases is expected to have resulted in a higher resident turnover and move-outs, thereby, straining occupancy. Also, the Zacks Consensus Estimate for FFO per share has been unchanged at $1.64 over the past month. Further, it suggests a year-over-year decline of 2.4%. (Read more: What's in Store for Mid-America Apartment's Q4 Earnings?)

Our proven model does not conclusively predict a positive surprise in terms of FFO per share for MAA this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

MAA currently has a Zacks Rank #3 and an Earnings ESP of 0.00%.

You can see the complete list of today’s Zacks #1 Rank stocks here.

AvalonBay: The company has high-quality assets located in some of the premium markets of the country, and has been banking on technology, scale and organizational capabilities to drive innovation and margin expansion in its portfolio. It is also expected to have retained its balance-sheet strength in the quarter under review.

However, unlike MAA, which has a significant presence in the Sun Belt region that has benefited from urban exodus, AvalonBay has notable exposure to urban residential assets and this portfolio has been feeling the brunt.

Amid these, the Zacks Consensus Estimate of $556.6 million for fourth-quarter revenues suggests a 6.2% year-over-year decrease. Also, the Zacks Consensus Estimate for the October-December quarter FFO per share moved a cent south to $2.09 over the past week. It also suggests a year-over-year decline of 14%. (Read more: What to Expect From AvalonBay This Earnings Season?)

AvalonBay Communities, Inc. Price and EPS Surprise

 

AvalonBay Communities, Inc. Price and EPS Surprise

AvalonBay Communities, Inc. price-eps-surprise | AvalonBay Communities, Inc. Quote

Our proven model does not conclusively predict a positive surprise in terms of FFO per share for AvalonBay this season, as the company currently carries a Zacks Rank #5 (Strong Sell) and has an Earnings ESP of -0.36%.

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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