What to Expect From AvalonBay (AVB) This Earnings Season?
AvalonBay Communities, Inc. AVB, a leading real estate investment trust (REIT) specializing in the development, acquisition and management of multifamily properties, is set to announce its fourth-quarter and full-year 2023 results after the closing bell on Jan 31.
In the last reported quarter, this residential REIT delivered a surprise of 0.76% in terms of core funds from operations (FFO) per share. The quarterly results reflected a year-over-year increase in same-store residential rental revenues, driven by effective lease rates.
Over the last four quarters, AvalonBay surpassed the Zacks Consensus Estimate on each occasion, the average beat being 1.16%. The graph below depicts the surprise history of the company:
AvalonBay Communities, Inc. Price and EPS Surprise
AvalonBay Communities, Inc. price-eps-surprise | AvalonBay Communities, Inc. Quote
As we approach the release of AvalonBay's fourth-quarter 2023 earnings report, it is important to examine how this residential REIT is likely to have performed amid the current market conditions.
US Apartment Market in Q4
Per RealPage data, although there was a significant recovery in apartment demand in the fourth quarter, it was not enough to keep up with the huge amounts of new supply, with the onslaught affecting occupancy and rent growth.
There was demand for 58,200 units in the fourth quarter, pushing the total demand figure to 233,741 units in the 12-month period, which marked a considerable change from net move-outs from 123,290 units recorded in 2022. However, there were massive amounts of new supply, with 129,015 units being delivered in the fourth quarter across the top 150 markets tracked by RealPage, bringing the total number of units delivered to 439,394 in 2023.
With supply outpacing demand, the occupancy level was 94.2%, contracting 30 basis points (bps) in the quarter and 90 points year over year. Apart from the occupancy rate, operators’ pricing power was also affected, with fourth-quarter rents contracting 1.3% but increasing 0.2% in the year. The monthly rent was $1,805, while the rent per square foot was $1.986.
Projections
AvalonBay's strategy of developing, acquiring and redeveloping multifamily properties in high-growth markets has served it well over the years. AVB’s focus on high-quality apartment communities in some of the most desirable neighborhoods allows it to maintain strong occupancy rates and command premium rents.
AvalonBay is banking on technology, scale and organizational capabilities to drive innovation and margin expansion in its portfolio. Its emphasis on long-term value creation and risk management has also contributed to its solid financial performance and ability to generate consistent cash flow. It is also likely to retain its balance sheet strength. However, rising supply and winter months are likely to have played a spoilsport.
The Zacks Consensus Estimate of $701.67 million for fourth-quarter revenues suggests a 4.78% year-over-year increase.
For the fourth quarter of 2023, AvalonBay expected core FFO per share in the range of $2.69-$2.79.
Before the fourth-quarter earnings release, the company’s activities were not adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the quarterly core FFO per share has been unrevised at $2.73 over the past month. However, this suggests year-over-year growth of 5.41%.
For the full year 2023, AvalonBay expected core FFO per share between $10.58 and $10.68, implying 8.6% growth year over year at the midpoint. This is based on the company’s projection for same-store residential rental revenue growth of 6.2%-6.4% and same-store residential NOI growth of 6.1%-6.5%.
For the year, we expect same-store residential rental revenue growth of 6.2%, expenses to increase 6.4% and consequently net operating income to increase 6.4% year over year. For the fourth quarter, we project an economic occupancy of 95.6%.
For the full year, the Zacks Consensus Estimate for core FFO per share is pegged at $10.62. The figure indicates an 8.48% increase year over year on 6.5% year-over-year growth in revenues to $2.76 billion.
Here Is What Our Quantitative Model Predicts:
Our proven model does not conclusively predict 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 not the case here.
AvalonBay currently carries a Zacks Rank of 3 and has an Earnings ESP of -0.92%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Stocks That Warrant a Look
Here are three stocks from the broader REIT sector — Welltower Inc. WELL, VICI Properties Inc. VICI and Kimco Realty Corporation KIM — you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter.
Welltower is slated to report quarterly numbers on Feb 13. WELL has an Earnings ESP of +0.80% and carries a Zacks Rank of 3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
VICI Properties, scheduled to report quarterly numbers on Feb 22, has an Earnings ESP of +2.16% and carries a Zacks Rank of 2.
Kimco Realty, slated to release quarterly numbers on Feb 8, has an Earnings ESP of +2.56% and carries a Zacks Rank of 2 at present.
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
Kimco Realty Corporation (KIM) : Free Stock Analysis Report
Welltower Inc. (WELL) : Free Stock Analysis Report
VICI Properties Inc. (VICI) : Free Stock Analysis Report
