Yahoo Finance Can Rebounding Demand Drive AvalonBay's (AVB) Q1 Growth?
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 first-quarter 2023 earnings on Apr 26 after market close.
In the last reported quarter, this residential REIT delivered a surprise of 0.39% in terms of core funds from operations (FFO) per share. Results reflected a year-over-year increase in same-store residential rental revenues. Same-store average rental revenues per occupied home reported a rise, though occupancy declined.
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 0.65%. 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
With the U.S. apartment market rebounding and normal seasonality resuming, AvalonBay seems poised to benefit from these trends. In this article, we'll take a closer look at the company's first-quarter performance using the latest available data and discuss the implications for investors.
U.S. Apartment Market Rebounds in Q1 2023
According to first-quarter data from RealPage Market Analytics, the U.S. apartment market witnessed a rebound in net apartment demand, ending a streak of three consecutive quarters of negative absorption. The market added 19,243 net new renters in the quarter, signaling a return to positive territory. Occupancy rates continued to slide but at a much lesser degree than before, coming in at 94.7% in March, matching the pre-pandemic decade average.
Similarly, in March, same-store effective asking rents for new lease signers increased 0.3%, with effective asking rents up 3.9% year over year, marking the first time below 4% since April 2021. These trends suggest that somewhat normal seasonality is returning to the market after a three-year absence due to the pandemic.
AvalonBay's Portfolio and Strategy
AvalonBay owns and manages a diverse portfolio of properties across several attractive markets in the United States, including the Northeast, Mid-Atlantic, Pacific Northwest, Northern California and Southern California regions. The company is also tracking opportunities in the newly expanded markets of Raleigh-Durham and Charlotte, NC; Southeast Florida; Dallas and Austin, TX, and Denver, CO. AVB focuses on high-quality apartment communities in some of the most desirable neighborhoods, which allows it to maintain strong occupancy rates and command premium rents.
AvalonBay's strategy of developing, acquiring and redeveloping multifamily properties in high-growth markets has served it well over the years. AvalonBay is banking on technology, scale and organizational capabilities to drive innovation and margin expansion in its portfolio. AVB's emphasis on long-term value creation and risk management has also contributed to its solid financial performance and ability to generate consistent cash flow.
Projections for Q1 2023
We expect same-store net operating income to increase 7.7% year over year in the first quarter. Meanwhile, we project economic occupancy of 95.8% in the quarter, while same-store average rental rates are projected to increase 3.6% year over year.
The Zacks Consensus Estimate of $665.6 million for first-quarter revenues suggests an 8.4% year-over-year increase. Before the first-quarter earnings release, the company’s activities were adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the quarterly core FFO per share has been revised four cents north in the past month to $2.54. Also, this suggests year-over-year growth of 12.4%.
AvalonBay's Q1 2023 Performance Through February
AvalonBay reported a 10.5% increase in same-store residential rental revenues for the two months ended Feb 28, 2023, compared with the prior-year period. This aligns with the company's initial expectation, published on Feb 8, 2023. In its March released first-quarter operating update, AvalonBay reported that the economic occupancy for its same-store residential communities improved to 96.2% in February from 95.8% in January and up from 95.6% in December 2022.
The like-term effective rent change for same-store residential communities improved to 4.2% in February from 3.7% in January and increased from 3.8% in December. Furthermore, renewal offers for March and April 2023 were delivered to residents at an average increase in the 7% range over the existing lease. For the first quarter of 2023, AvalonBay expected core FFO per share in the range of $2.47-$2.57.
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 -0.42%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
However, our model shows that Equity Residential EQR and Independence Realty Trust, Inc. IRT have the right combination of elements to report a surprise this quarter.
Equity Residential is slated to report quarterly numbers on Apr 25. EQR has an Earnings ESP of +0.31% and carries a Zacks Rank of 3 presently.
Independence Realty Trust, scheduled to report quarterly numbers on Apr 26, has an Earnings ESP of +4.82% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
Conclusion
AvalonBay Communities is well-positioned to capitalize on the rebounding U.S. apartment market in the first quarter of 2023. Investors will be closely watching the company's earnings release to evaluate its ability to grow revenues, manage expenses and deliver shareholder value through dividends. A solid performance in the first quarter of 2023 could potentially make AVB an attractive investment opportunity in the multifamily REIT space.
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
Equity Residential (EQR) : Free Stock Analysis Report
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