Residential REIT AvalonBay Communities Inc. AVB has high-quality assets located in some of the premium markets of the country, which help the company generate steady rental revenues. The company’s properties generally command the highest rents in its markets.
The REIT is also leveraging 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 is also witnessing decent collection of rents for its residential properties with receipts inching closer to the 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.
However, the pandemic has given rise to macroeconomic uncertainties and a choppy job-market environment, in turn, causing household contraction and consolidation. In addition, record-low mortgage rates, and demand for spaces are driving home sales and adversely impacting rental demand. For AvalonBay, 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 the second quarter’s 94.6%. 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. Also, like-term effective rent change was a negative 4.8% in July and August combined compared with the second quarter’s 3.1% decline.
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. Furthermore, use of concessions is likely to be rampant amid a slowdown in demand and these negatives are likely to keep affecting residential REITs, including AvalonBay in the near term.
Shares of this Zacks Rank #3 (Hold) company have lost 7.2% over the past three months, narrower than its industry’s decline of 7.8%. The Zacks Consensus Estimate for current-year funds from operations (FFO) per share marginally moved down to $9.02 over the past week.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks to Consider
MidAmerica Apartment Communities, Inc.’s MAA FFO per share estimate for 2020 has been revised marginally upward to $6.31 over the past month. It currently carries a Zacks Rank of 2.
Prologis, Inc.’s PLD FFO per share estimate for the ongoing year moved marginally north to $3.73 over the past month. The company currently carries a Zacks Rank of 2.
Duke Realty Corporation’s DRE Zacks Consensus Estimate for the current-year FFO per share moved up 2.8% to $1.49 over the past two months. The company currently holds a Zacks Rank of 2.
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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