A month has gone by since the last earnings report for AvalonBay Communities (AVB). Shares have lost about 1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is AvalonBay due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
AvalonBay Q1 FFO and Revenues Miss Estimates, Up Y/Y
AvalonBay’s first-quarter 2020 core FFO per share of $2.39 increased 3.9% year over year. However, the figure narrowly missed the Zacks Consensus Estimate of $2.40.
This year-over-year increase reflects growth in average rental rates and economic occupancy.
Total revenues of $601.7 million were up 6.3% year over year. However, the revenue figure missed the Zacks Consensus Estimate of $601.9 million.
The company has also apprised about the April residential revenue collections for established communities, through Apr 30, 2020, in light of the coronavirus pandemic.The collected residential revenues (denoting the part of billed residential revenue that has been collected and satisfied) were 93.9%, while deferred and uncollected residential revenues came in at 6.1%.
Moreover, the company noted that retail revenues for established communities denoted 1.4% of the total revenues for established communities for full-year 2019. For the month of April, collected retail revenues and deferred and uncollected retail revenues was 44% and 56%, respectively.
Quarter in Detail
In the reported quarter, revenues from established communities improved 3% year over year to $547.9 million. Results reflect a 2.7% increase in average rental rates and 0.4% growth in economic occupancy.
Operating expenses for established communities rose 3.2% on a year-over-year basis. Consequently, NOI from established communities climbed 3% year on year to $391.6 million.
During the first quarter, AvalonBay sold wholly-owned operating community — Avalon Shelton — in Shelton, CT, for $64.7 million, leading to a gain in accordance with GAAP of $24.4 million and economic gain of $14.9 million. It also sold 36 of the 172 residential condominiums at The Park Loggia, in New York, NY, for $105.6 million. In addition, following the quarter end and through May 6, the company sold five residential condominiums for $23.3 million.
Further, during the March-end quarter, AvalonBay completed the development of three apartment communities — Avalon Teaneck, in Teaneck, NJ; Avalon North Creek, in Bothell, WA; and Avalon Norwood, located in Norwood, MA — comprising a total of 762 apartment homes, for a total capital cost of $217 million.
During the January-March period, the company did not commence the construction of any new development communities. As of Mar 31, 2020, AvalonBay had 19 development communities under construction (expected to contain 6,198 apartment homes and 64,000 square feet of retail space). The estimated total capital cost at completion for these development communities is $2.32 billion at share.
Notably, at the end of the first quarter, AvalonBay had an estimated remaining total capital cost of $873 million for investment over the next several years. These include the 19 development communities under construction as well as the recently-accomplished development communities.
As of Mar 31, 2020, the projected total capital cost of development rights decreased to $4.1 billion from the prior-quarter end’s $4.2 billion.
Balance Sheet Position
As of Mar 31, 2020, AvalonBay had $750-million outstanding under its $1.75-billion unsecured credit facility. Together with the amounts drawn on the unsecured credit facility, the company had $868.4 million in unrestricted cash and cash in escrow as of the same date. In addition, its annualized net debt-to-core EBITDAre for the January-March quarter was 4.6 times and unencumbered NOI was 93%.
Furthermore, as of Apr 30, 2020, the company had $215-million outstanding under its unsecured credit facility following the use of unrestricted cash for net repayments of $535 million in April.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
Currently, AvalonBay has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise AvalonBay has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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AvalonBay Communities, Inc. (AVB) : Free Stock Analysis Report
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