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Is a Beat in Store for AvalonBay (AVB) This Earnings Season?

AvalonBay Communities, Inc. AVB is slated to report fourth-quarter and full-year 2021 earnings on Feb 2 after the market closes. The company’s quarterly results are likely to reflect growth in both revenues and funds from operations (FFO) per share.

In the last reported quarter, this residential real estate investment trust (REIT) reported a surprise of 3.52% in terms of FFO per share. Results were backed by the better-than-anticipated top line. AvalonBay registered a year-over-year increase in same-store revenues on higher occupancy and rent relief collections.

Over the last four quarters, AVB surpassed the Zacks Consensus Estimate on three occasions and missed the same on the other, the average surprise being 0.82%. The graph below depicts the surprise history of the company:

AvalonBay Communities, Inc. Price and EPS Surprise

AvalonBay Communities, Inc. Price and EPS Surprise
AvalonBay Communities, Inc. Price and EPS Surprise

AvalonBay Communities, Inc. price-eps-surprise | AvalonBay Communities, Inc. Quote

Let’s see how things have shaped up before this announcement.

Factors to Consider

For the U.S. apartment market, 2021 appeared to be robust, with renter demand continuing to surge significantly. Net demand aggregated more than 673,000 units, surpassing the prior high set in 2000 by a whopping 66%, per a report from the real estate technology and analytics firm, RealPage. Household formation seemed to have taken place at a faster pace and fueled demand for apartments as well as for other types of housing. Also, renter incomes continued to climb upward. Limited availability led to price appreciation and effective asking rents on new leases increased a remarkable 14.4% in 2021.

Moreover, for the first time, the nation’s apartment market experienced an increase in occupancy in the fourth quarter, which is otherwise considered to be a seasonally slow leasing period. This increase is due to the pandemic that disrupted the seasonal behavior. In the fourth quarter, U.S. occupancy climbed 30 basis points (bps), touching 97.4% at the end of the year, contrary to a decline of an average of 40 bps during the fourth quarter in the past three decades.

AvalonBay, with its high-quality assets located in some of the premium markets of the country, is likely to have benefited from the favorable environment. Moreover, the company is banking on technology, scale and organizational capabilities to drive innovation and margin expansion in its portfolio. It is also likely to retain its balance-sheet strength.

The Zacks Consensus Estimate of $604.57 million for fourth-quarter revenues suggests an 8.8% year-over-year increase. Established community-economic occupancy is projected at 96% for the quarter, while average rental rates per occupied home are estimated at $2,908, calling for growth from the prior quarter’s $2,533.

For the fourth quarter of 2021, AvalonBay projected same-store residential rental revenues to be up 4.5-5.5%, operating expenses to flare up 1.25-2.25% and net operating income (NOI) to increase 5.5-7.5%. AVB expected core FFO per share in the range of $2.19-$2.29.

Before the quarterly earnings release, analysts seem to be optimistic about the company’s prospects as the Zacks Consensus Estimate for the October-December quarter’s FFO per share has moved 1.4% north to $2.24 over the past month. It also suggests a year-over-year increase of 10.9%.

AvalonBay’s earnings might reflect the adverse impact of the pandemic on its business year over year, though the gap is expected to have narrowed. Also, a high apartment supply adds to its woes.

For full-year 2021, AvalonBay projected core FFO per share in the range of $8.18-$8.28. AVB estimated same-store residential rental revenues to be down 2.3-1.9%, operating expenses to shoot up 3.4-3.8% and NOI to slip 5.1-4.3%.

For the full year, the Zacks Consensus Estimate for FFO per share has remained unchanged to $8.22 over the past month. The figure indicates a decrease of 5.4% year over year on revenues of $2.29 billion.

Here Is What Our Quantitative Model Predicts:

Our proven model predicts a surprise in terms of FFO per share for AvalonBay this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an FFO beat, which is the case here.

AvalonBay currently carries a Zacks Rank of 3 and has an Earnings ESP of +0.17%. You can uncover the best stocks to buy or sell, before they’re reported, with our Earnings ESP Filter.

Other Stocks That Warrant a Look

Here are three stocks from the REIT sector — American Campus Communities, Inc. ACC, Highwoods Properties, Inc. HIW and Invitation Homes Inc. INVH — that you may want to consider as our model shows that these also have the right combination of elements to report a surprise this quarter:

American Campus Communities, slated to release fourth-quarter earnings on Feb 22, has an Earnings ESP of +1.86% and carries a Zacks Rank of 3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Highwoods Properties, scheduled to report quarterly numbers on Feb 8, has an Earnings ESP of +2.67 % and carries a Zacks Rank of 3.

Invitation Homes, slated to report quarterly numbers on Feb 15, has an Earnings ESP of +2.19% and carries a Zacks Rank of 3.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.


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AvalonBay Communities, Inc. (AVB) : Free Stock Analysis Report

Highwoods Properties, Inc. (HIW) : Free Stock Analysis Report

American Campus Communities Inc (ACC) : Free Stock Analysis Report

Invitation Home (INVH) : Free Stock Analysis Report

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