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Why Is AvalonBay (AVB) Down 3% Since the Last Earnings Report?

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It has been about a month since the last earnings report for AvalonBay Communities, Inc. (AVB - Free Report) . Shares have lost about 3% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

AvalonBay's Q2 FFO Lags Estimates, Revenues Up Y/Y

AvalonBay’s second-quarter 2017 core FFO per share of $2.09 missed the Zacks Consensus Estimate of $2.14. Total revenue of $530.5 million managed to marginally exceed the Zacks Consensus Estimate of $529.5 million.

Nevertheless, core FFO per share recorded 3.0% growth from the year-ago figure of $2.03. Results reflect growth in NOI from existing, acquired and newly developed operating communities.

Also, total revenue increased 5.6% year over year as revenues from development communities and stabilized operating communities witnessed growth.

Quarter in Detail   

For the quarter, average rental rates were up 2.5% year over year, with the highest growth in the Pacific North West portfolio (5.1%), followed by the South California (3.9%) and New England (2.7%) portfolios. However, economic occupancy remained unchanged at 95.4%.

Revenues from established communities – those that stabilized operations as of Jan 1, 2016 and are neither executing nor planning any significant redevelopment work during the current year – improved 2.5% year over year, indicating increase in average rental rates.

However, operating expenses for established communities flared up 3.5% on a year-over-year basis. Consequently, NOI from established communities rose 2.1% year over year to nearly $277 million.

As of Jun 30, 2017, AvalonBay had 23 communities under construction (expected to contain 6,965 apartment homes in total), which are anticipated to be completed for an estimated total capital cost of around $3.2 billion. This includes the company's share of communities being developed through joint ventures.

Liquidity Position

As of Jun 30, 2017, AvalonBay had $105.0 million outstanding under its $1.5-billion unsecured credit facility. The company had around $293.2 million in unrestricted cash and cash in escrow as of that date. Moreover, the company’s annualized net debt-to-core EBITDA for second-quarter 2017 was 5.0 times.

Outlook

For the third quarter, AvalonBay expects core FFO per share in the range of $2.14–$2.20.

For full-year 2017, the company projects core FFO per share in the band of $8.50–$8.70.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been five revisions higher for the current quarter

AvalonBay Communities, Inc. Price and Consensus

 

VGM Scores

At this time, AvalonBay's stock has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate investors will probably be better served looking elsewhere.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.




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