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What to Expect From AvalonBay (AVB) in Q2 Earnings Season?

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AvalonBay Communities, Inc. (AVB - Free Report) is slated to report second-quarter 2019 results on Jul 31, after the market closes. The company’s quarterly performance is likely to reflect growth in revenues as well as funds from operations (FFO) per share.

In the last reported quarter, this residential REIT performance beat estimates with respect to FFO per share, delivering a positive surprise of 0.88%. Results displayed growth in average rental rates.

Over the last four quarters, the company surpassed estimates on three occasions and missed in the other. This resulted in an average positive surprise of 0.56%. The graph below depicts the surprise history of the company:

AvalonBay Communities, Inc. Price and EPS Surprise

Let’s see how things are shaping up for this announcement.

Factors to Consider

The latest figures from real estate technology and analytics firm RealPage, Inc. (RP) suggest that during the current year’s prime leasing period, the U.S. apartment rental market was able to capitalize on stellar demand for rental units.

Per the RealPage report, from April through June, net move-ins aggregated 155,515 units, which came in 11% higher than the second-quarter 2018 product absorption, as well as touched a five-year high. Occupancy reached 95.8% during the second quarter, up from the prior-year quarter’s 95.4% despite steady delivery of new units. Moreover, the market has achieved a 3% increase in rents from the prior-year level, attaining an average of $1,390 per month.

AvalonBay too is expected to benefit from its high-quality assets in premium locations, favorable demographics, household formation, stable economy and job-market gains. The company’s performance in the to-be-reported quarter is likely to display continued high occupancy. Furthermore, it is expected to retain its balance-sheet strength.

In an operating update for the second quarter, AvalonBay Communities mentioned that its total rental revenues for established communities were up 3.4% year over year for the two-month period ending May 31, 2019. This was 40 basis points higher than what was expected by the company for the period when it provided the 2019 established communities total rental revenue growth outlook in February.

Moreover, the company noted that established communities’ like-term effective rent change for April and May were 3.2% compared to 3% recorded in the comparable period last year. Additionally, the company stated that the renewal offers for June and July are being provided to residents, at an average rise of 5.3% over the existing lease.

Also, the Zacks Consensus Estimate for second-quarter revenues is $572.7 million, denoting an expected 0.6% year-over-year increase. Further, the Zacks Consensus Estimate for FFO per share is currently pinned at $2.31, indicating 4.5% year-on-year growth.

However, the company’s activities during the quarter were inadequate to gain analysts’ confidence. Consequently, the Zacks Consensus Estimate remained unchanged over the past 30 days.

Notably, new apartment deliveries are anticipated to have remained elevated in the company’s markets during the April-June quarter. The high supply is likely to put pressure on rental rates. This apart, high concession activity amid elevated supply is a concern.

Here is what our quantitative model predicts:

AvalonBay does not have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for AvalonBay is -0.19%.

Zacks Rank: AvalonBay currently carries a Zacks Rank of 2 (Buy), which increases the predictive power of ESP. However, we also need a positive ESP to be confident of a positive surprise.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Life Storage, Inc. (LSI - Free Report) , scheduled to release earnings on Jul 31, has an Earnings ESP of +0.12% and currently carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Federal Realty Investment Trust (FRT - Free Report) , slated to report second-quarter results on Aug 1, has an Earnings ESP of +0.57% and carries a Zacks Rank of 2, currently.

Realty Income Corporation (O - Free Report) , set to report quarterly results on Aug 5, has an Earnings ESP of +0.78% and carries a Zacks Rank of 3, at present.

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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