What to Expect From AvalonBay (AVB) This Earnings Season?

·4 min read

AvalonBay Communities, Inc. AVB is slated to report fourth-quarter and full-year 2022 results on Feb 8 after market close. The company’s quarterly results are likely to reflect growth in revenues and funds from operations (FFO) per share.

In the last reported quarter, this residential real estate investment trust’s (REIT) core FFO per share missed the Zacks Consensus Estimate by 1.19%. Third-quarter results reflected lower-than-expected growth in revenues.

Over the last four quarters, AvalonBay surpassed the Zacks Consensus Estimate on two occasions, met the same on the other and missed in another, the average beat being 0.89%. 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

AvalonBay has high-quality assets in some of the premium markets of the country. With the reopening of offices and the return of lifestyle amenities to established markets, a continued flow of residents was observed in the urban and job-centered suburban markets, which is encouraging. Also, due to the high cost of homeownership, the transition from renters to homeowners is difficult, making the renting of apartment units a viable option.

However, for the U.S. apartment market, low consumer confidence and high inflation have taken a toll, with net demand for apartments ending in negative territory for calendar 2022, per a report from the real estate technology and analytics firm RealPage. Despite solid job growth and wage gains, there was weak demand for all types of housing.

Amid this soft demand, new-lease apartment rents fell in December for the fourth consecutive month, declining another 0.4%. The cumulative rent drop was around 1.6% since September. Also, the national apartment vacancy surged from a record seasonal low of 2.5% one year ago to 5.0% in December 2022.

This demand softness is likely to have impacted the growth tempo of AVB as well. Nevertheless, AvalonBay 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 $669.96 million for fourth-quarter revenues suggests an 11.4% year-over-year increase.
In the third-quarter earnings release, AvalonBay expected core FFO per share in the range of $2.55-$2.65 for the fourth quarter.

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 revised a cent south in the past month to $2.58. However, this suggests year-over-year growth of 13.7%.

For 2022, AVB expected core FFO per share between $9.74 and $9.84. This is based on the company’s projection for same-store residential rental revenue growth to lie between 10.8% and 11.2%, and same-store residential NOI growth is expected in the range of 13-13.8%.

For the full year, the Zacks Consensus Estimate for core FFO per share is pegged at $9.80. The figure indicates an 18.6% increase year over year on 13.02% year-over-year growth in revenues to $2.59 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 4 (Sell) and has an Earnings ESP of +0.47%. 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 — First Industrial Realty Trust, Inc. FR, STAG Industrial, Inc. STAG and Gladstone Commercial Corporation GOOD — you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter.

First Industrial Realty Trust is slated to report quarterly numbers on Feb 8. FR has an Earnings ESP of +7.65% and carries a Zacks Rank of 3 presently. You can see the complete list of today’s Zacks #1 Rank stocks here.

STAG Industrial, scheduled to report quarterly numbers on Feb 15, has an Earnings ESP of +2.89% and carries a Zacks Rank of 2.

Gladstone Commercial Corporation is slated to report quarterly numbers on Feb 22. GOOD has an Earnings ESP of +5.13% and has a Zacks Rank of 3 presently.

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

First Industrial Realty Trust, Inc. (FR) : Free Stock Analysis Report

Stag Industrial, Inc. (STAG) : Free Stock Analysis Report

Gladstone Commercial Corporation (GOOD) : Free Stock Analysis Report

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