Shares of AvalonBay Communities AVB have gained 19.2% over the past six months, outperforming the industry's 12.8% growth.
In November, AVB reported third-quarter 2024 core funds from operations (FFO) per share of $2.74, which beat the Zacks Consensus Estimate of $2.71. The figure climbed 3% from the prior-year quarter’s tally.
The quarterly results reflected a year-over-year increase in same-store residential revenues. Same-store average monthly revenue per occupied home also rose. This residential REIT raised its 2024 core FFO per share outlook.
For the full year, AvalonBay now expects core FFO per share to be between $10.99 and $11.09 compared with the previously guided range of $10.92-$11.12. This indicates a 3.9% increase at the midpoint compared with 3.7% expected earlier.
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Factors Behind AVB Stock’s Price Surge: Will the Trend Last?
AvalonBay mainly focuses on adding properties in the leading metropolitan areas where the market is characterized by growing employment in high-wage sectors of the economy, higher homeownership costs and a diverse and vibrant quality of life. In its market, demographic growth also continues to be strong in the young adult age cohort, which has a higher propensity to rent. Hence, with these factors in place, AvalonBay has been a steady performer and remains well-poised for growth.
In the third quarter of 2024, same-store residential net operating income (NOI) climbed 2.0% from the prior year period. Same-store average revenue per occupied home rose to $3033 in the third quarter, up from $2,939 in the third quarter of 2023.
To enhance its overall portfolio quality, AvalonBay has carried out several strategic acquisitions over the years. During the first nine months of 2024, the company purchased four wholly-owned communities with 968 apartment units and 1,700 square feet of commercial space at an aggregate value of $274.6 million. It is optimizing its portfolio by increasing allocation to suburban submarkets and expansion regions. Such efforts are likely to bolster the company’s external growth in the upcoming period.
AVB’s earnings growth over the intermediate term is likely to be further supported by the increased development deliveries. It has started new development totaling $450 million in the third quarter of 2024 to reach its target of $1.1 billion of new starts in 2024. In the next few years, the developments underway are expected to deliver meaningful incremental NOI upon completion and stabilization and fuel FFO and NAV growth.
AvalonBay is leveraging technology, scale and organizational capabilities to drive margin expansion across its portfolio. The company is on track to realize roughly $10 million of incremental NOI from its operating initiatives in 2024.
AVB maintains a healthy balance sheet position. The company has a well-laddered debt maturity schedule with a weighted average year-to-maturity of 7 years. In addition, in the third quarter of 2024, its annualized net debt-to-core EBITDAre was 4.2 times. From the beginning of 2024 through Sept. 30, 2024, unencumbered NOI was 95%, providing scope for tapping the additional secured debt capital if required.
Key Risks for AVB
An elevated supply of rental units in certain markets is likely to fuel competition and curb pricing power, thereby impeding the rent growth momentum for AVB to some extent. The continuation of the flexible working environment has shifted renter demand away from higher cost and urban/infill markets. This is likely to impact the demand for some of AvalonBay’s properties in the urban markets and put pressure on occupancy levels.
Stocks to Consider
Some better-ranked stocks from the residential REIT sector are Equity Lifestyle Properties ELS and Veris Residential VRE, 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 Equity Lifestyle Properties’ 2024 FFO per share is pegged at $2.92, indicating a 6.18% year-over-year increase.
The Zacks Consensus Estimate for Veris Residential’s 2024 FFO per share is pegged at 57 cents, implying a 7.55% year-over-year rise.
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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
