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What to Expect From AvalonBay (AVB) This Earnings Season?
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AvalonBay Communities, Inc. (AVB - Free Report) , a leading real estate investment trust (REIT) specializing in the development, acquisition and management of multifamily properties, is set to announce its second-quarter 2024 results after the closing bell on Jul 31.
In the last reported quarter, this residential REIT delivered a surprise of 2.27% in terms of core funds from operations (FFO) per share. The quarterly results reflected better-than-expected performance in the stabilized portfolio.
Over the last four quarters, AvalonBay surpassed the Zacks Consensus Estimate on each occasion, the average beat being 1.43%. The graph below depicts the surprise history of the company:
AvalonBay Communities, Inc. Price and EPS Surprise
As we approach the release of AvalonBay's second-quarter 2024 earnings report, it is important to examine how this residential REIT is likely to have performed amid the current market conditions.
US Apartment Market in Q2
Per RealPage data, the U.S. apartment market witnessed a surge in demand in the second quarter despite supply continuing to grab headlines.
This is evidenced by high absorption rates. Around 389,629 apartment units were absorbed on net over the past 12 months, with some 257,000 units being absorbed during the first two quarters of 2024. However, there were massive amounts of new supply, with 522,743 new market-rate apartment units delivered in the past 12 months.
With the narrow gap between demand and supply, national occupancy and rent growth rates have stabilized. Occupancy held steady for three straight months, remaining at 94.2% in June. Rents rose 0.2% in the year ending June, and the monthly effective rent change was north 0.4%. The average effective rent was $1,838.
Projections
AvalonBay's strategy of developing, acquiring and redeveloping multifamily properties in high-growth markets has served it well over the years. AVB’s focus on high-quality apartment communities in some of the most desirable neighborhoods allows it to maintain strong occupancy rates and command premium rents.
AvalonBay is banking on technology, scale and organizational capabilities to drive innovation and margin expansion in its portfolio. Its emphasis on long-term value creation and risk management has also contributed to its solid financial performance and ability to generate consistent cash flow. It is also likely to retain its balance sheet strength. However, rising supply is likely to have played a spoilsport.
AvalonBay’s second-quarter 2024 operating update, published on May 31, highlights the company witnessing a stable physical occupancy and like-term effective rent change accelerating in May from the previous month. AVB also sees lease-up activities outperforming its expectations.
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 the company’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 like-term 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%.
We project economic occupancy of 96.1% in the quarter, while same-store average rental rates are projected to increase 2.1% year over year.
The Zacks Consensus Estimate of $718.49 million for second-quarter revenues suggests a 4% year-over-year increase.
For the second quarter of 2024, AvalonBay expects core FFO per share in the range of $2.63-$2.73.
Before the second-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 a cent up to $2.71 over the past three months. This suggests year-over-year growth of 1.9%.
However, the struggle to lure renters is expected to have persisted in the second quarter as supply volumes are likely to have remained elevated in some of its markets. Also, AVB faces competition from other housing alternatives, such as rental apartments, condominiums and single-family homes. Such a competitive landscape limits the company’s ability to increase rent, thereby restricting its growth momentum to some extent.
Also, a high interest rate is a concern for AvalonBay. Elevated rates imply higher borrowing costs for the company, which is likely to have affected its ability to purchase or develop real estate. We expect interest expenses to increase 11.2% year over year in the second quarter.
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 2 and has an Earnings ESP of 0.00%. 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 two stocks from the residential REIT sector — Essex Property Trust, Inc. (ESS - Free Report) and American Homes 4 Rent (AMH - Free Report) — that you may want to consider, as our model shows that these have the right combination of elements to report a surprise this quarter.
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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What to Expect From AvalonBay (AVB) This Earnings Season?
AvalonBay Communities, Inc. (AVB - Free Report) , a leading real estate investment trust (REIT) specializing in the development, acquisition and management of multifamily properties, is set to announce its second-quarter 2024 results after the closing bell on Jul 31.
In the last reported quarter, this residential REIT delivered a surprise of 2.27% in terms of core funds from operations (FFO) per share. The quarterly results reflected better-than-expected performance in the stabilized portfolio.
Over the last four quarters, AvalonBay surpassed the Zacks Consensus Estimate on each occasion, the average beat being 1.43%. 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
As we approach the release of AvalonBay's second-quarter 2024 earnings report, it is important to examine how this residential REIT is likely to have performed amid the current market conditions.
US Apartment Market in Q2
Per RealPage data, the U.S. apartment market witnessed a surge in demand in the second quarter despite supply continuing to grab headlines.
This is evidenced by high absorption rates. Around 389,629 apartment units were absorbed on net over the past 12 months, with some 257,000 units being absorbed during the first two quarters of 2024. However, there were massive amounts of new supply, with 522,743 new market-rate apartment units delivered in the past 12 months.
With the narrow gap between demand and supply, national occupancy and rent growth rates have stabilized. Occupancy held steady for three straight months, remaining at 94.2% in June. Rents rose 0.2% in the year ending June, and the monthly effective rent change was north 0.4%. The average effective rent was $1,838.
Projections
AvalonBay's strategy of developing, acquiring and redeveloping multifamily properties in high-growth markets has served it well over the years. AVB’s focus on high-quality apartment communities in some of the most desirable neighborhoods allows it to maintain strong occupancy rates and command premium rents.
AvalonBay is banking on technology, scale and organizational capabilities to drive innovation and margin expansion in its portfolio. Its emphasis on long-term value creation and risk management has also contributed to its solid financial performance and ability to generate consistent cash flow. It is also likely to retain its balance sheet strength. However, rising supply is likely to have played a spoilsport.
AvalonBay’s second-quarter 2024 operating update, published on May 31, highlights the company witnessing a stable physical occupancy and like-term effective rent change accelerating in May from the previous month. AVB also sees lease-up activities outperforming its expectations.
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 the company’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 like-term 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%.
We project economic occupancy of 96.1% in the quarter, while same-store average rental rates are projected to increase 2.1% year over year.
The Zacks Consensus Estimate of $718.49 million for second-quarter revenues suggests a 4% year-over-year increase.
For the second quarter of 2024, AvalonBay expects core FFO per share in the range of $2.63-$2.73.
Before the second-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 a cent up to $2.71 over the past three months. This suggests year-over-year growth of 1.9%.
However, the struggle to lure renters is expected to have persisted in the second quarter as supply volumes are likely to have remained elevated in some of its markets. Also, AVB faces competition from other housing alternatives, such as rental apartments, condominiums and single-family homes. Such a competitive landscape limits the company’s ability to increase rent, thereby restricting its growth momentum to some extent.
Also, a high interest rate is a concern for AvalonBay. Elevated rates imply higher borrowing costs for the company, which is likely to have affected its ability to purchase or develop real estate. We expect interest expenses to increase 11.2% year over year in the second quarter.
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 2 and has an Earnings ESP of 0.00%. 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 two stocks from the residential REIT sector — Essex Property Trust, Inc. (ESS - Free Report) and American Homes 4 Rent (AMH - Free Report) — that you may want to consider, as our model shows that these have the right combination of elements to report a surprise this quarter.
Essex Property Trust is scheduled to report quarterly numbers on Jul 30. ESS has an Earnings ESP of +1.00% and a Zacks Rank of 2 presently. You can see the complete list of today’s Zacks #1 Rank stocks here.
American Homes 4 Rent is slated to report quarterly numbers on Aug 1. AMH has an Earnings ESP of +1.14% and carries a Zacks Rank of 3 presently.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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.