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

AvalonBay Communities, Inc. AVB is slated to report second-quarter 2022 earnings on Jul 27 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 (REIT) delivered an in-line performance in terms of FFO per share. First-quarter results reflected a year-over-year increase in same-store residential revenues, partially offset by rising operating expenses.

Over the last four quarters, AvalonBay surpassed the Zacks Consensus Estimate on three occasions and met the same on the other, the average beat being 1.86%. 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, the second quarter appears to be a solid one this year with the impressive demand for rental units. AVB, with its high-quality assets in some of the premium markets of the country, is likely to have benefited from the favorable environment.

With the reopening of offices and the returning of lifestyle amenities to established markets, a continued flow of residents is observed in the urban and job-centered suburban markets, which is encouraging. Moreover, de-densification and the desire for more space are resulting in fewer adults per apartment, thereby creating incremental demand for renting units. Also, the higher household income is supporting rent growth. There is strong demand from young adults who are gaining from tight labor market conditions and record wage growth.

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. With these positives, AvalonBay is expected to have experienced a solid peak leasing session with high occupancy and rent growth.

Per its operational update, AvalonBay reported a 13% increase in same-store residential rental revenues for the two months ended May 31, 2022 compared with the prior-year period. This is roughly 190 basis points higher than the company’s most recent expectation.

In addition to the better-than-expected occupancy and effective lease rates, this upside is driven by favorable underlying resident uncollectible lease revenues and the recognition of higher-than-expected delinquent rent payments from COVID-19 rental assistance programs.

In the second-quarter operating update, AvalonBay also reported that the economic occupancy for its same-store residential communities improved to 96.5% in May from 96.4% in April. This also marked an increase from 96.3% in the first quarter of 2021.

The like-term effective rent change for same-store residential communities improved to 13.8% in May from 13.6% in April. The figure also marked an increase from 12.9% in the first quarter. The like-term effective rent change for AVB’s suburban communities improved to 11.6% in May from 11.4% in April and 10.9% in the first quarter. In case of urban communities, although the like-term effective rent change slightly deteriorated to 18.5% in May from 19.4% in April, it was up from 17.8% in the first quarter.

Region-wise, Southeast Florida reported a whopping 21.4% like-term effective rent change in May, while the Metro NY / NJ and Pacific North West reported a 17.2% and 17.1% like-term effective rent change in May, respectively.

The Zacks Consensus Estimate of $632.00 million for second-quarter revenues suggests a 12.5% year-over-year increase.

Moreover, 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.

In the first-quarter earnings release, AvalonBay projected core FFO per share in the range of $2.25-$2.37.

The Zacks Consensus Estimate for the April-June quarter’s FFO per share has moved a cent upward to $2.35 over the past three months. Also, it suggests a year-over-year increase of 18.7%.

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 -0.41%. 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 residential REIT sector — Equity Residential EQR, UDR Inc. UDR and Essex Property Trust, Inc. ESS — that you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter:

Equity Residential, slated to release second-quarter earnings on Jul 26, has an Earnings ESP of +1.11% and a Zacks Rank of 3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

UDR, scheduled to report quarterly figures on Jul 26, has an Earnings ESP of +0.66% and a Zacks Rank of 2 currently.

Essex Property Trust, slated to report quarterly numbers on Jul 26, has an Earnings ESP of +1.21 % and carries a Zacks Rank of 2.

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

Note: Anything related to earnings presented in this write-up represent 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
Equity Residential (EQR) : Free Stock Analysis Report
United Dominion Realty Trust, Inc. (UDR) : Free Stock Analysis Report
Essex Property Trust, Inc. (ESS) : Free Stock Analysis Report
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