AvalonBay (AVB) Projects Higher Q1 Rental Revenues, Stock Up
Shares of AvalonBay Communities AVB were up 3.95% during Monday’s regular trading session after this residential REIT’s last Friday’s announcement of a projected outperformance of its first-quarter same-store residential revenue growth on better-than-expected occupancy and lower-than-expected uncollectible lease revenues.
Specifically, AvalonBay now expects its same-store residential revenues for the first quarter to increase 3.7%-3.8% over the prior-year period. This range at the midpoint is roughly 45 basis points higher than the company’s most recent expectation on Jan 31, 2024.
Economic occupancy for its same-store residential communities of 96% in February inched up from 95.8% in the prior month. AvalonBay had recorded economic occupancy of 95.6% in the fourth quarter.
The like-term effective rent change for same-store residential communities was 2.4% in February, up from 1.3% in January as well as in the fourth quarter of 2023. The like-term effective rent change for renewals was 4.5% for both January and February, up from 4.2% for the fourth quarter. New move-in like-term effective rent change was negative 0.1% in February compared with a negative 2% in January and a negative 1.9% in the fourth quarter.
For March and April 2024, renewal offers delivered to residents were at an average increase of 5% over existing lease agreements.
AvalonBay is poised to benefit from the healthy demand for its residential properties in key regions and portfolio diversification efforts in the urban and suburban markets. It is focused on optimizing its portfolio by increasing allocation to suburban markets and expansion regions as well as with accretive investments in the existing portfolio. AVB is also banking on technology and scale to drive innovation and margin expansion.
Per the company’s operating update, despite the anticipation of tempering housing demand from slower job growth, rental demand in the company’s established regions will benefit from an expensive for-sale housing alternative.
AvalonBay expects same-store revenue growth in 2024 to be driven by lease rates, other rental revenues and lower uncollectible lease revenues. The company delivered around $27 million of incremental net operating income (NOI) through year-end 2023 and expects approximately $9 million of incremental NOI in 2024.
AVB also mentioned that its current lease-ups are surpassing expectations. Also, another $855 million entering lease-up in 2024 is projected to benefit from mark-to-market.
However, elevated supply in certain markets, high interest rates and a choppy macroeconomic environment remain concerns for this residential REIT.
Currently, AvalonBay carries a Zacks Rank of 3 (Hold). Shares of AVB have increased 4.8%, outperforming its industry’s climb of 3.3% over the past three months.
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Stocks to Consider
Some better-ranked stocks from the broader REIT sector are Iron Mountain IRM and Lamar Advertising LAMR, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for IRM’s 2024 funds from operations (FFO) per share is pegged at $4.38, which suggests year-over-year growth of 6.3%.
The Zacks Consensus Estimate for LAMR’s 2024 FFO per share stands at $7.74, which indicates an increase of 3.6% from the year-ago period.
Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.
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