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What to Expect From AvalonBay (AVB) This Earnings Season?
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AvalonBay Communities (AVB - Free Report) , a leading real estate investment trust (REIT) specializing in the development, acquisition and management of multifamily properties, is set to announce its second-quarter 2023 earnings on Jul 31 after market close.
In the last reported quarter, this residential REIT delivered a surprise of 1.18% 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, driven by solid lease rate growth.
Over the last four quarters, AvalonBay surpassed the Zacks Consensus Estimate on three occasions and missed on another, the average beat being 0.95%. The graph below depicts the surprise history of the company:
AvalonBay Communities, Inc. Price and EPS Surprise
As we approach the release of AvalonBay's second-quarter 2023 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 Q2 2023
Despite cooling rent growth, apartment demand is showing signs of a solid rebound, with net absorption in the second quarter of 2023 nearing surging new supply levels. This stabilizes occupancy rates after a steep decline in 2022.
Per RealPage data, in the second quarter, net demand registered at 83,449 units, and this marked a five-quarter high. While this is still below the record numbers seen during the 2021 boom, it indicates a normalization of apartment demand. This demand rebound coincides with a 50-year high in apartment construction starting to convert into peak completions, with more than 107,000 units completed in the second quarter of this year itself.
However, despite the supply surge, this solid demand is aiding in the mitigation of vacancy spikes in most markets, with U.S. apartment occupancy coming at 94.7% as of June, marking only a 0.1 percentage point decline since January. It marks a notable improvement compared to the occupancy fall of 1.2 percentage points in the first half of 2022 and then an additional 1.4 percentage points in the second half of the year.
However, rent growth remains below normal in 2023, with year-over-year effective asking rent growth at just 1.5%. This is due to apartment operators prioritizing occupancy rates over rents, leading to more options for renters and putting downward pressure on rent growth. Same-store effective asking rents increased only 0.46% between May and June 2023.
AvalonBay's Portfolio and Strategy
AvalonBay owns and manages a diverse portfolio of properties across several attractive markets in the United States, including the Northeast, Mid-Atlantic, Pacific Northwest, Northern California and Southern California regions. The company is also tracking opportunities in the newly expanded markets of Raleigh-Durham and Charlotte, NC; Southeast Florida; Dallas and Austin, TX, and Denver, CO. AVB focuses on high-quality apartment communities in some of the most desirable neighborhoods, which allows it to maintain strong occupancy rates and command premium rents.
AvalonBay's strategy of developing, acquiring and redeveloping multifamily properties in high-growth markets has served it well over the years. AvalonBay is banking on technology, scale and organizational capabilities to drive innovation and margin expansion in its portfolio. AVB's emphasis on long-term value creation and risk management has also contributed to its solid financial performance and ability to generate consistent cash flow.
Projections for Q2 2023
We expect same-store net operating income to increase 4.7% year over year in the second quarter. Meanwhile, we project economic occupancy of 96.3% in the quarter, while same-store average rental rates are projected to increase 8.8% year over year.
The Zacks Consensus Estimate of $675.7 million for second-quarter revenues suggests a 4.8% year-over-year increase. Before the second-quarter earnings release, the company’s activities were adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the quarterly core funds from operations (FFO) per share has been revised a cent north in the past month to $2.60. This suggests year-over-year growth of 7%.
AvalonBay's Q2 2023 Performance Through May
Per its operating update, AvalonBay reported a 6.5% increase in same-store residential rental revenues for the two months ended May 31, 2023 compared with the prior-year period. This is roughly 80 basis points higher than the company’s most recent expectation on Apr 26, 2023.
However, economic occupancy for its same-store residential communities of 96% in May edged down from 96.1% in the prior month. AvalonBay had recorded economic occupancy of 96.1% in the first quarter.
The like-term effective rent change for same-store residential communities was 4.7% in May, marginally down from 4.8% in April. However, the figure marked an increase from 4.1% in the first quarter. For June and July 2023, renewal offers delivered to residents were at an average increase in the low-7% range over existing lease agreements.
For the second quarter of 2023, AvalonBay expected core FFO per share in the range of $2.54-$2.64.
Here Is What Our Quantitative Model Predicts:
Our proven model does not conclusively predict 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 not the case here.
AvalonBay currently carries a Zacks Rank of 2 and has an Earnings ESP of - 0.17%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Stocks That Warrant a Look
Here are two stocks from the residential REIT sector — Invitation Homes Inc. (INVH - Free Report) and American Homes 4 Rent (AMH - Free Report) — you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter.
AvalonBay Communities is well-positioned to capitalize on the rebounding U.S. apartment market in the second quarter of 2023. Investors will be closely watching the company's earnings release to evaluate its ability to grow revenues, manage expenses and deliver shareholder value through dividends. A solid performance in the second quarter of 2023 could potentially make AVB an attractive investment opportunity in the multifamily REIT space.
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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What to Expect From AvalonBay (AVB) This Earnings Season?
AvalonBay Communities (AVB - Free Report) , a leading real estate investment trust (REIT) specializing in the development, acquisition and management of multifamily properties, is set to announce its second-quarter 2023 earnings on Jul 31 after market close.
In the last reported quarter, this residential REIT delivered a surprise of 1.18% 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, driven by solid lease rate growth.
Over the last four quarters, AvalonBay surpassed the Zacks Consensus Estimate on three occasions and missed on another, the average beat being 0.95%. 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 second-quarter 2023 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 Q2 2023
Despite cooling rent growth, apartment demand is showing signs of a solid rebound, with net absorption in the second quarter of 2023 nearing surging new supply levels. This stabilizes occupancy rates after a steep decline in 2022.
Per RealPage data, in the second quarter, net demand registered at 83,449 units, and this marked a five-quarter high. While this is still below the record numbers seen during the 2021 boom, it indicates a normalization of apartment demand. This demand rebound coincides with a 50-year high in apartment construction starting to convert into peak completions, with more than 107,000 units completed in the second quarter of this year itself.
However, despite the supply surge, this solid demand is aiding in the mitigation of vacancy spikes in most markets, with U.S. apartment occupancy coming at 94.7% as of June, marking only a 0.1 percentage point decline since January. It marks a notable improvement compared to the occupancy fall of 1.2 percentage points in the first half of 2022 and then an additional 1.4 percentage points in the second half of the year.
However, rent growth remains below normal in 2023, with year-over-year effective asking rent growth at just 1.5%. This is due to apartment operators prioritizing occupancy rates over rents, leading to more options for renters and putting downward pressure on rent growth. Same-store effective asking rents increased only 0.46% between May and June 2023.
AvalonBay's Portfolio and Strategy
AvalonBay owns and manages a diverse portfolio of properties across several attractive markets in the United States, including the Northeast, Mid-Atlantic, Pacific Northwest, Northern California and Southern California regions. The company is also tracking opportunities in the newly expanded markets of Raleigh-Durham and Charlotte, NC; Southeast Florida; Dallas and Austin, TX, and Denver, CO. AVB focuses on high-quality apartment communities in some of the most desirable neighborhoods, which allows it to maintain strong occupancy rates and command premium rents.
AvalonBay's strategy of developing, acquiring and redeveloping multifamily properties in high-growth markets has served it well over the years. AvalonBay is banking on technology, scale and organizational capabilities to drive innovation and margin expansion in its portfolio. AVB's emphasis on long-term value creation and risk management has also contributed to its solid financial performance and ability to generate consistent cash flow.
Projections for Q2 2023
We expect same-store net operating income to increase 4.7% year over year in the second quarter. Meanwhile, we project economic occupancy of 96.3% in the quarter, while same-store average rental rates are projected to increase 8.8% year over year.
The Zacks Consensus Estimate of $675.7 million for second-quarter revenues suggests a 4.8% year-over-year increase. Before the second-quarter earnings release, the company’s activities were adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the quarterly core funds from operations (FFO) per share has been revised a cent north in the past month to $2.60. This suggests year-over-year growth of 7%.
AvalonBay's Q2 2023 Performance Through May
Per its operating update, AvalonBay reported a 6.5% increase in same-store residential rental revenues for the two months ended May 31, 2023 compared with the prior-year period. This is roughly 80 basis points higher than the company’s most recent expectation on Apr 26, 2023.
However, economic occupancy for its same-store residential communities of 96% in May edged down from 96.1% in the prior month. AvalonBay had recorded economic occupancy of 96.1% in the first quarter.
The like-term effective rent change for same-store residential communities was 4.7% in May, marginally down from 4.8% in April. However, the figure marked an increase from 4.1% in the first quarter. For June and July 2023, renewal offers delivered to residents were at an average increase in the low-7% range over existing lease agreements.
For the second quarter of 2023, AvalonBay expected core FFO per share in the range of $2.54-$2.64.
Here Is What Our Quantitative Model Predicts:
Our proven model does not conclusively predict 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 not the case here.
AvalonBay currently carries a Zacks Rank of 2 and has an Earnings ESP of - 0.17%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Stocks That Warrant a Look
Here are two stocks from the residential REIT sector — Invitation Homes Inc. (INVH - Free Report) and American Homes 4 Rent (AMH - Free Report) — you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter.
Invitation Homes, scheduled to report quarterly numbers on Jul 26, has an Earnings ESP of +0.90% and carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
American Homes 4 Rent is slated to report quarterly numbers on Jul 27. AMH has an Earnings ESP of +3.24% and carries a Zacks Rank of 3 presently.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
Conclusion
AvalonBay Communities is well-positioned to capitalize on the rebounding U.S. apartment market in the second quarter of 2023. Investors will be closely watching the company's earnings release to evaluate its ability to grow revenues, manage expenses and deliver shareholder value through dividends. A solid performance in the second quarter of 2023 could potentially make AVB an attractive investment opportunity in the multifamily REIT space.
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.