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Key Factors to Impact AvalonBay's (AVB) Q4 Earnings

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AvalonBay Communities, Inc. AVB is slated to report fourth-quarter and 2019 results on Feb 5, after the market closes. The company’s quarterly results are likely to reflect growth in revenues as well as funds from operations (FFO) per share.

In the last reported quarter, this residential REIT missed estimates with respect to the FFO per share, reporting a negative surprise of 0.43%. Though the company achieved increase in average rental rates, economic occupancy registered a decline.

Over the last four quarters, the company missed estimates on three occasions and surpassed in the other. This resulted in an average negative surprise of 0.43%. 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

Following a robust prime leasing season in 2019, the U.S. apartment rental market put up a decent show in the December-end quarter, despite demand for apartments generally slowing down during the colder months, as renters usually prefer less to move in winters.

Per the latest report from real estate technology and analytics firm RealPage, Inc., occupancy at the end of the fourth quarter remained as high as 95.8%, reflecting an expansion of 40 basis points (bps), year on year. Moreover, rents for new-resident leases were up 2.8% in 2019, hovering around the 3% level that the apartment market has been witnessing since late 2016.

Amid these, AvalonBay is expected to have registered steady rental revenues, given its ownership of high-quality assets located in some of the premium markets of the country. As such, the Zacks Consensus Estimate for fourth-quarter rental and other income is pegged at $592 million, indicating 1% sequential growth.

Further, high home-ownership costs in several markets are affecting transitions from renters to homeowners. This, along with favorable demographics and household formation as well as job-market gains, is likely to have contributed to high occupancy at the company’s residential properties.

This will support top-line growth for the October-December period. In fact, the Zacks Consensus Estimate for fourth-quarter revenues of $594 million suggests 2.7% year-over-year increase.

AvalonBay has also been pursuing various initiatives to boost efficiency and margin expansion in its portfolio. It has deployed various technology-enabled productivity enhancements like developing online tour scheduling, as well as launching an AI and new maintenance platform. Furthermore, the company has resorted to several physical building improvements like increasing usage of more durable materials. These efforts will likely result in lower repairs and maintenance cost, and drive revenues in the fourth quarter.

However, the company’s activities during the quarter were inadequate to gain analysts’ confidence. Consequently, the Zacks Consensus Estimate for fourth-quarter 2019 FFO per share remained unchanged at $2.40 over the past 30 days. Nonetheless, it indicates 3.9% year-on-year growth. 

Here is What Our Quantitative Model Predicts

Our proven model predicts a beat 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 a beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

AvalonBay currently carries a Zacks Rank of 2 and has an Earnings ESP of +0.46%.

Other Stocks That Warrant a Look

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

Healthpeak Properties, Inc. PEAK, slated to release fourth-quarter earnings on Feb 11, has an Earnings ESP of +1.15% and carries a Zacks Rank of 3, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Equinix, Inc. (EQIX - Free Report) , set to report quarterly numbers on Feb 12, has an Earnings ESP of +0.53% and carries a Zacks Rank of 3, currently.

Host Hotels & Resorts, Inc. HST, scheduled to release October-December quarter results on Feb 19, has an Earnings ESP of +1.52% and currently holds a Zacks Rank #3.

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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