AvalonBay Communities AVB reported a 6.5% increase in same-store residential rental revenues for the two months ended May 31, 2023 compared with the prior-year period. This is roughly 80 basis points higher than the company’s most recent expectation on Apr 26, 2023.
However, economic occupancy for its same-store residential communities of 96% in May edged down from 96.1% in the prior month. AvalonBay had recorded economic occupancy of 96.1% in the first quarter. The like-term effective rent change for same-store residential communities was 4.7% in May, marginally down from 4.8% in April. However, the figure marked an increase from 4.1% in the first quarter.
Per the operating update, the like-term effective rent change for AVB’s suburban communities of 4.7% in May and April improved from 3.8% in the first quarter. In the case of urban communities, the like-term effective rent change slightly deteriorated to 4.7% in May from 5.1% in April. The same was 4.8% in the first quarter.
Region-wise, notable performers included New England with effective rent growth of 6.7% in April and 6% in May, and Southern California, which saw a 5.2% increase in April and solid 5.1% growth in May.
For June and July 2023, renewal offers delivered to residents were at an average increase in the low-7% range 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 also banking on technology and scale to drive innovation and margin expansion.
However, the lack of rent relief in some of its markets in 2023 might limit the company’s revenue growth to a certain extent. Elevated supply in certain markets and high-interest rates and a choppy macroeconomic environment add to its woes.
Currently, AvalonBay carries a Zacks Rank of 3 (Hold). Shares of AVB have increased 3.7% against the industry’s fall of 1.8% over the past three months.
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Recently, Equity Residential EQR bolstered its 2023 earnings guidance, citing continued strong demand in its markets, particularly New York, and lower-than-expected delinquency rates, mainly in Southern California.
EQR lifted its normalized funds from operations (FFO) per share projection to the $3.73-$3.83 band from its previous outlook in the range of $3.70-$3.80. This revision is primarily attributed to a positive impact of 3 cents, mainly from an increase in same-store net operating income. Limited new apartment supply in most of EQR's markets as well as high prices and the low availability of single-family homes were recognized as favorable factors for its outlook.
Stocks to Consider
Some better-ranked stocks from the REIT sector are Independence Realty Trust IRT and BRT Apartments Corp. BRT. While Independence Realty Trust currently carries a Zacks Rank #2 (Buy), BRT Apartments sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Independence Realty Trust’s current-year FFO per share is pegged at $1.16, which calls for a 7.4% increase year over year.
The Zacks Consensus Estimate for BRT Apartments’ 2023 FFO per share has been revised 33.6% north in the past month to $1.55.
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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