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AvalonBay Communities (AVB) Issues Q1 Rental Revenue Update

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In the recently-issued operating update for first-quarter 2020, AvalonBay Communities, Inc. AVB announced that it anticipates total rental revenues for established communities to rise 3.1% for the first two months of the current year from the prior-year period.

This denotes an improvement of 10 basis points (bps) from management’s projection in its full-year outlook for established communities’ rental revenue growth issued on Feb 5.

Notably, established communities for 2020 refer to the consolidated communities which have stabilized operations as of Jan 1, 2019. These communities do not undertake any significant development work frequently and are not inclined to do so in the future as well. Moreover, these consolidated communities are not held for sale or planned for disposition in the current year.

In fourth-quarter 2019, revenues from established communities improved 2.5% year over year to $463.3 million, indicating an increase in average rental rates and occupancy. Average rental rates moved up 2.4% and economic occupancy witnessed 0.1% growth. In addition, NOI from established communities increased 2.5% year over year to $335.5 million. Notably, according to a study by the real estate technology and analytics firm, RealPage, Inc. RP, AvalonBay, this January outperformed all its peers in terms of occupancy levels since the early 2000s, reporting a level of 95.5%. It is still lower than the levels witnessed in August 2019 (96.3%), a 20-plus-year high, which is not a surprise, as occupancy usually witnesses a slowdown in winters, as renters avoid moving in harsh winters. In addition, the figure is 30 bps ahead of the year-ago tally and 10 bps lower than the December tally. Also, the last three years have witnessed an increase of 3% in rents on an average across the United States. This January was no different, as rents were up 2.9%, 50 bps below the year-ago rate.

Nevertheless, apartment deliveries are anticipated to remain elevated in the near term, which has emerged as a concern for residential REITs, including AvalonBay, Equity Residential EQR and Apartment Investment & Management Co. AIV. Nevertheless, an improving demand also raises hopes.

AvalonBay is expected to benefit from its high-quality assets in premium locations, favorable demographics, household formation, healthy economy and job-market growth. The company’s fourth-quarter 2019 core funds from operations (FFO) per share of $2.43 marked an improvement of 5.2%% from the prior year’s $2.30.

AvalonBay currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AvalonBay has rallied 2.5% over the past year compared with the industry's rise of 8.4%.

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