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AvalonBay (AVB) Rises 13.4% in 3 Months: Will the Trend Last?
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Shares of AvalonBay Communities (AVB - Free Report) have gained 13.4% in the past three months compared with the industry's upside of 9.2%.
The company is well-poised to benefit from the healthy renter demand for its residential properties in the high barrier-to-entry regions of the United States, as favorable demographic trends and rising home ownership costs are likely to keep driving demand for rental units. The company’s efforts to leverage technology and scale to drive margin expansion and operational efficiency seem encouraging.
Analysts seem bullish on this Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for its 2024 funds from operations (FFO) per share has been raised marginally over the past month.
Image Source: Zacks Investment Research
Let us decipher the factors behind the surge in the stock price.
AvalonBay has high-quality assets located in some of the premium markets of the country, which enable the company to generate steady rental revenues. It focuses on adding properties situated in the leading metropolitan areas where the market is characterized by growing employment in the high-wage sectors of the economy, higher home ownership costs, and a diverse and vibrant quality of life. This allows AvalonBay to generate superior long-term risk-adjusted returns on apartment community investments over the other markets that lack such characteristics.
Its portfolio is well-diversified, with its same-store portfolio comprising a decent number of both suburban and urban assets. Moreover, limited single-family home inventory is making the transition from renter to homeowner difficult in the markets where it operates. As a result, renting residential units has turned out to be a more flexible and viable option among renters. Hence, with these factors in place, AvalonBay remains well-poised for growth.
In June 2024, AVB 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 April. AVB also sees lease-up activities outperforming its expectations. Though turnover for same-store residential increased in May, it is still below historical levels.
In 2024, management expects same-store residential revenues to increase 3.1% year over year. We expect year-over-year growth of 3.3% in the company’s same-store residential rental revenues in 2024.
To enhance its overall portfolio quality, AvalonBay has carried out several strategic acquisitions over the years. In 2023, the company completed acquisitions worth $277.2 million. Moreover, given the favorable residential real estate market fundamentals in the newly expanded markets of Raleigh-Durham and Charlotte, NC; Southeast Florida; Dallas and Austin, TX, and Denver, CO, AVB is tracking opportunities to increase its asset base here.
A young, well-educated workforce, in-migration trends and a high concentration of science, technology, engineering or math jobs are the demand drivers for these markets. The company optimizes its portfolio by increasing allocation to suburban submarkets and expansion regions and by making accretive investments in the existing portfolio.
AvalonBay has an encouraging development pipeline. Over the next few years, the developments underway are expected to deliver meaningful incremental net operating income (NOI) upon completion and stabilization and are expected to fuel FFO and NAV growth.
AvalonBay is leveraging technology, scale and organizational capabilities to drive margin expansion across its portfolio. It focuses on enhancing self-serve digital offerings to customers to provide them with a seamless and personalized experience. Such efforts are likely to bring about operational efficiency and reduce costs, aiding NOI growth.
The company maintains a healthy balance sheet position. It has a well-laddered debt maturity schedule with a weighted average year-to-maturity of 7.4 years. Also, an unencumbered NOI of 95%, as of the end of the first quarter of 2024, provides scope for tapping the additional secured debt capital if required. Hence, a solid financial position is likely to capitalize on AVB’s long-term growth opportunities.
However, the elevated supply of rental units in certain markets is likely to fuel competition and curb pricing power, thereby impeding the rent growth momentum to some extent. A high interest rate adds to its woes.
The Zacks Consensus Estimate for ESS’s 2024 funds from operation (FFO) per share has moved marginally northward over the past month to $15.40.
The Zacks Consensus Estimate for CSR’s current-year FFO per share has been raised 2.1% over the past two months to $4.81.
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 (AVB) Rises 13.4% in 3 Months: Will the Trend Last?
Shares of AvalonBay Communities (AVB - Free Report) have gained 13.4% in the past three months compared with the industry's upside of 9.2%.
The company is well-poised to benefit from the healthy renter demand for its residential properties in the high barrier-to-entry regions of the United States, as favorable demographic trends and rising home ownership costs are likely to keep driving demand for rental units. The company’s efforts to leverage technology and scale to drive margin expansion and operational efficiency seem encouraging.
Analysts seem bullish on this Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for its 2024 funds from operations (FFO) per share has been raised marginally over the past month.
Image Source: Zacks Investment Research
Let us decipher the factors behind the surge in the stock price.
AvalonBay has high-quality assets located in some of the premium markets of the country, which enable the company to generate steady rental revenues. It focuses on adding properties situated in the leading metropolitan areas where the market is characterized by growing employment in the high-wage sectors of the economy, higher home ownership costs, and a diverse and vibrant quality of life. This allows AvalonBay to generate superior long-term risk-adjusted returns on apartment community investments over the other markets that lack such characteristics.
Its portfolio is well-diversified, with its same-store portfolio comprising a decent number of both suburban and urban assets. Moreover, limited single-family home inventory is making the transition from renter to homeowner difficult in the markets where it operates. As a result, renting residential units has turned out to be a more flexible and viable option among renters. Hence, with these factors in place, AvalonBay remains well-poised for growth.
In June 2024, AVB 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 April. AVB also sees lease-up activities outperforming its expectations. Though turnover for same-store residential increased in May, it is still below historical levels.
In 2024, management expects same-store residential revenues to increase 3.1% year over year. We expect year-over-year growth of 3.3% in the company’s same-store residential rental revenues in 2024.
To enhance its overall portfolio quality, AvalonBay has carried out several strategic acquisitions over the years. In 2023, the company completed acquisitions worth $277.2 million. Moreover, given the favorable residential real estate market fundamentals in the newly expanded markets of Raleigh-Durham and Charlotte, NC; Southeast Florida; Dallas and Austin, TX, and Denver, CO, AVB is tracking opportunities to increase its asset base here.
A young, well-educated workforce, in-migration trends and a high concentration of science, technology, engineering or math jobs are the demand drivers for these markets. The company optimizes its portfolio by increasing allocation to suburban submarkets and expansion regions and by making accretive investments in the existing portfolio.
AvalonBay has an encouraging development pipeline. Over the next few years, the developments underway are expected to deliver meaningful incremental net operating income (NOI) upon completion and stabilization and are expected to fuel FFO and NAV growth.
AvalonBay is leveraging technology, scale and organizational capabilities to drive margin expansion across its portfolio. It focuses on enhancing self-serve digital offerings to customers to provide them with a seamless and personalized experience. Such efforts are likely to bring about operational efficiency and reduce costs, aiding NOI growth.
The company maintains a healthy balance sheet position. It has a well-laddered debt maturity schedule with a weighted average year-to-maturity of 7.4 years. Also, an unencumbered NOI of 95%, as of the end of the first quarter of 2024, provides scope for tapping the additional secured debt capital if required. Hence, a solid financial position is likely to capitalize on AVB’s long-term growth opportunities.
However, the elevated supply of rental units in certain markets is likely to fuel competition and curb pricing power, thereby impeding the rent growth momentum to some extent. A high interest rate adds to its woes.
Stocks to Consider
Some better-ranked stocks from the residential REIT sector are Essex Property Trust (ESS - Free Report) and Centerspace (CSR - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for ESS’s 2024 funds from operation (FFO) per share has moved marginally northward over the past month to $15.40.
The Zacks Consensus Estimate for CSR’s current-year FFO per share has been raised 2.1% over the past two months to $4.81.
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.