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AvalonBay (AVB) Updates on Rent Collections & Q3 Operations

Zacks Equity Research
·4 min read

AvalonBay Communities, Inc. AVB is witnessing decent collection of rents for its residential properties with receipts inching closer to pre-COVID collection rate.

As of Sep 9, the company’s September collections reached 95% of its average monthly residential collections percentage for AvalonBay’s established communities as of the ninth day of the month for each of the months in the 12-month period ended Mar 31, 2020.

Moreover, as of the end of each July and August, its residential collections as a percentage of billed rents for established communities marked 96% of its average monthly established communities residential collections percentage at month end for the 12-month period ended Mar 31, 2020. Also, as of Sep 9, established communities residential collections were 97% of billed residential revenues for second-quarter, 2020.

However, average physical occupancy and rent were affected for its established communities. Particularly, the average physical occupancy for the July and August combined was 93.3%, reflecting a decline from 94.6% in the second quarter. Moreover, like-term lease rent change was a negative 2.5% in July and August combined compared with the decline of 0.4% during the June-end quarter. Moreover, like-term effective rent change was a negative 4.8% in July and August combined compared with the second quarter’s 3.1% decline.

The pandemic has resulted in macroeconomic uncertainties and a choppy job-market environment, in turn, causing household contraction and consolidation. Apart from these, a number of factors have been affecting rental demand, including the coronavirus outbreak and the work-from-home trend, resulting in a shift of some renter demand away from higher cost and urban/infill markets.

AvalonBay too witnessed a decline in average physical occupancy of its urban communities to 90.5% in July and August combined, from 93.6% in the second quarter. Like-term effective rent change was a negative 8% in July and August combined compared with the second quarter’s 4.3% decline. For suburban communities, average physical occupancy shrunk marginally to 94.4% in July and August combined compared with 95% for the second quarter, while like-term effective rent change was a negative 3% in July and August combined compared with the June-end quarter’s 2.6% decline.

In addition, record-low mortgage rates and the desire for space are driving home sales and adversely impacting rental demand. Moreover, there is a decline in demand from two categories of renters — corporate and students — since most temporary corporate assignments have been canceled, while higher-education institutions are now adopting remote-learning models and limiting on-campus activities for the near term. Thus, there is a reduced demand in many urban sub-markets though a number of suburban ones are benefiting from this.

The pandemic is also affecting the rent-paying capabilities of residential tenants. Furthermore, use of concessions is likely to be rampant amid a slowdown in demand and these negatives are likely keep affecting residential REITs, including AvalonBay, Equity Residential EQR, Essex Property ESS, UDR Inc. UDR and several others, in the near term.

Nevertheless, AvalonBay has high-quality assets located in some of the premium markets of the country, which enable it to generate steady rental revenues. The company’s properties generally command the highest rents in its markets.

AvalonBay is also banking on technology, scale and organizational capabilities to drive innovation and margin expansion in its portfolio. This has become all the more essential in this social-distancing era, as the virus outbreak needed a quick shift to virtual operations for the continuity of normal business operations.

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

Shares of AvalonBay have declined 3.1% quarter to date compared with the industry's fall of 1.9%.

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United Dominion Realty Trust, Inc. (UDR) : Free Stock Analysis Report
AvalonBay Communities, Inc. (AVB) : Free Stock Analysis Report
Equity Residential (EQR) : Free Stock Analysis Report
Essex Property Trust, Inc. (ESS) : Free Stock Analysis Report
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