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AvalonBay (AVB) Sees Like-Term Effective Rent Change Accelerating
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AvalonBay Communities (AVB - Free Report) recently announced a second-quarter 2024 operating update. The update highlights witnessing a stable physical occupancy and like-term effective rent change accelerating in May from the previous month. It also sees lease-up activities outperforming its expectations. Though turnover for same-store residential increased in May, it is still below historical levels.
AvalonBay noted that in May, physical occupancy for its same-store residential portfolio was 95.5%, remaining unchanged from the prior month. The company recorded physical occupancy of 95.6% in the first quarter.
Per the operating update, the turnover for same-store residential was 41.9% in May, up from 36.3% in April and 34.1% in the first quarter of 2024. However, the turnover was below the 2015-2019 average levels from the first quarter of 2024 onwards.
The like-term effective rent change for same-store residential was 3.7% in May, up from 3.2% in April. The figure also marked an increase from 2% in the first quarter.
The like-term effective rent change for AVB’s suburban communities was 4% in May, rising from 3.5% in April and 2.3% in the first quarter. In the case of urban communities, the like-term effective rent change increased to 3.2% in May from 2.6% in April. The same was 1.2% in the first quarter.
Region-wise, notable performers included Mid-Atlantic, with effective rent growth of 5.1% in April and 6% in May, and Pacific NW, which saw a 4.4% increase in April and solid 5.2% growth in May.
For June and July 2024, renewal offers delivered to existing residents were at an average increase of approximately 6%.
Its portfolio trends remained healthy in the first quarter of 2024, and the company remains well-positioned for the peak leasing season.
In 2024, it expects core funds from operations (FFO) per share growth of 2.6%. Its same-store residential revenue growth is expected to grow at 3.1%. The rise is attributable to higher effective lease rates and lower uncollectible lease revenue. Same-store residential net operating income growth is estimated at 2.1%.
Per the company’s operating update, the National Association for Business Economics has significantly increased its job growth forecast to 1.6 million for 2024, from the initial outlook of 0.7 million provided on Jan 31, 2024. Rental demand in AvalonBay’s established regions continues to benefit from an expensive for-sale alternative.
AVB also mentioned that approximately $1 billion of lease-up activity is surpassing initial expectations. Weighted average monthly revenue per home is now projected at $3,220, up 10% from the initial projection. The weighted average projected initial stabilized yield is expected to be 6%, increasing 40 bps from the initial projection.
AvalonBay is poised to benefit from the healthy renter demand for its residential properties in key regions. Its portfolio is well diversified with its same-store portfolio, comprising a decent number of both suburban and urban assets. Strategic buyouts and development projects augur well for long-term growth. AVB is also banking on technology and scale to drive margin expansion and operational efficiency. However, elevated supply in certain markets and high interest rates remain concerns for this residential REIT.
Over the past three months, shares of this Zacks Rank #3 (Hold) company have gained 4.1% compared with the industry’s growth of 1.2%.
Image: Bigstock
AvalonBay (AVB) Sees Like-Term Effective Rent Change Accelerating
AvalonBay Communities (AVB - Free Report) recently announced a second-quarter 2024 operating update. The update highlights witnessing a stable physical occupancy and like-term effective rent change accelerating in May from the previous month. It also sees lease-up activities outperforming its expectations. Though turnover for same-store residential increased in May, it is still below historical levels.
AvalonBay noted that in May, physical occupancy for its same-store residential portfolio was 95.5%, remaining unchanged from the prior month. The company recorded physical occupancy of 95.6% in the first quarter.
Per the operating update, the turnover for same-store residential was 41.9% in May, up from 36.3% in April and 34.1% in the first quarter of 2024. However, the turnover was below the 2015-2019 average levels from the first quarter of 2024 onwards.
The like-term effective rent change for same-store residential was 3.7% in May, up from 3.2% in April. The figure also marked an increase from 2% in the first quarter.
The like-term effective rent change for AVB’s suburban communities was 4% in May, rising from 3.5% in April and 2.3% in the first quarter. In the case of urban communities, the like-term effective rent change increased to 3.2% in May from 2.6% in April. The same was 1.2% in the first quarter.
Region-wise, notable performers included Mid-Atlantic, with effective rent growth of 5.1% in April and 6% in May, and Pacific NW, which saw a 4.4% increase in April and solid 5.2% growth in May.
For June and July 2024, renewal offers delivered to existing residents were at an average increase of approximately 6%.
Its portfolio trends remained healthy in the first quarter of 2024, and the company remains well-positioned for the peak leasing season.
In 2024, it expects core funds from operations (FFO) per share growth of 2.6%. Its same-store residential revenue growth is expected to grow at 3.1%. The rise is attributable to higher effective lease rates and lower uncollectible lease revenue. Same-store residential net operating income growth is estimated at 2.1%.
Per the company’s operating update, the National Association for Business Economics has significantly increased its job growth forecast to 1.6 million for 2024, from the initial outlook of 0.7 million provided on Jan 31, 2024. Rental demand in AvalonBay’s established regions continues to benefit from an expensive for-sale alternative.
AVB also mentioned that approximately $1 billion of lease-up activity is surpassing initial expectations. Weighted average monthly revenue per home is now projected at $3,220, up 10% from the initial projection. The weighted average projected initial stabilized yield is expected to be 6%, increasing 40 bps from the initial projection.
AvalonBay is poised to benefit from the healthy renter demand for its residential properties in key regions. Its portfolio is well diversified with its same-store portfolio, comprising a decent number of both suburban and urban assets. Strategic buyouts and development projects augur well for long-term growth. AVB is also banking on technology and scale to drive margin expansion and operational efficiency. However, elevated supply in certain markets and high interest rates remain concerns for this residential REIT.
Over the past three months, shares of this Zacks Rank #3 (Hold) company have gained 4.1% compared with the industry’s growth of 1.2%.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the broader REIT sector are Rexford Industrial Realty (REXR - Free Report) and Lamar Advertising (LAMR - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for REXR’s 2024 FFO per share is pegged at $2.34, which suggests year-over-year growth of 6.85%.
The Zacks Consensus Estimate for LAMR’s 2024 FFO per share stands at $8.03, which indicates an increase of 7.5% from the year-ago period.
Note: Anything related to earnings presented in this write-up represents FFO, a widely used metric to gauge the performance of REITs.