What to Expect From AvalonBay Communities in Q1 Earnings?

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 2025 results after the closing bell on April 30.In the last reported quarter, this residential REIT delivered a negative surprise of 1.06% in terms of core funds from operations (FFO) per share. The quarterly results reflected higher property management, other indirect operating expenses and interest expenses. However, a year-over-year increase in same-store residential revenues and same-store net operating income (NOI) supported the results to an extent.Over the past four quarters, AvalonBay surpassed the Zacks Consensus Estimate on three occasions and missed on the other, the average beat being 1.13%. 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. QuoteAs we approach the release of AvalonBay's first-quarter 2025 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 Q1The first quarter of 2025 brought a wave of strong apartment demand, offering a lift to occupancy and rent growth as the supply surge begins to wane. Per RealPage data, from January through March 2025, more than 138,000 market-rate apartment units were absorbed nationally. This marks the highest first-quarter demand on record in the RealPage data set covering more than three decades. Combined with the robust demand seen over the last three quarters of 2024, annual absorption reached nearly 708,000 units — essentially matching the absorption from the early 2022 demand boom.Demand in the year-ending first quarter of 2025 exceeded concurrent supply. Though nearly 577,000 units were delivered in the said period — just shy of last quarter’s record high of about 589,000 units — annual supply volume is forecasted to decline in the coming months, indicating that the construction cycle may have peaked.Occupancy rose modestly to 95.2% in March, the highest reading since October 2022. While still within long-term norms, the uptick provides confidence that the rental market is not materially oversupplied. Rent growth has also regained traction. Effective rents rose 0.75% in March and 1.1% in the year-ending March 2025 — the highest 12-month reading since June 2023. All of the nation’s 50 largest apartment markets recorded rent increases on a monthly basis, signaling broad-based strength. The average effective rent was $1,848.However, the recovery is regionally uneven. The Midwest and Rust Belt regions led annual rent gains, with cities like Kansas City, MO, Chicago, IL, and Pittsburgh, PA, outperforming. In contrast, high-supply Sun Belt metros, such as Austin, TX, and Phoenix, AZ, continued to experience rent cuts. However, these markets saw monthly rent growth in March, suggesting momentum is returning ahead of the prime leasing season.Factors to Consider Ahead of AVB’s Q1 ResultsAvalonBay’s focus on developing, acquiring and redeveloping multifamily properties in high-growth areas has driven strong occupancy and premium rents over the years. By leveraging technology and scale, the company enhances margins and maintains financial stability. This is expected to have continued in the first quarter.However, elevated supply in some markets is likely to have kept a check on occupancy growth. Additionally, high interest rates are likely to have kept interest expenses high. While AvalonBay remains committed to long-term value creation, these factors may have affected its near-term growth momentum.AvalonBay furthered its portfolio optimization strategy by planning to acquire eight apartment communities across Texas. In February, AVB announced that it is under contract to acquire two apartment communities in the Austin metropolitan area and agreed to acquire six apartment communities in the Dallas-Fort Worth metropolitan area from BSR Real Estate Investment Trust and its subsidiaries. The move highlighted the company’s strategic portfolio expansionary efforts in high-growth regions of Texas to boost its revenues and enhance portfolio quality.The Austin asset acquisition, worth $187 million, was anticipated to be completed around March 31, 2025, while the Dallas-Fort asset acquisition, worth $431.5 million, is expected to close in the second quarter of 2025. The eight apartment communities feature 2,701 homes with an average price per home of around $229,000 and a weighted average rent per home of $1,675 per month.Projections for AVBIn AvalonBay’s first-quarter operating update, the company noted witnessing the same-store operating metrics in line with its expectations as provided in its initial 2025 outlook. Per the operating update, economic occupancy for its same-store residential portfolio was 95.9%, including actuals for January and projections for February as of Feb. 26. This was an improvement from 95.6% in the fourth quarter of 2024. The like-term effective rent change for the same-store residential portfolio was 1.6% from January through Feb. 26, up from 1.1% in the fourth quarter of 2024.We project economic occupancy of 95.9% in the quarter, up 10 basis points sequentially, while same-store average rental rates are projected to increase 2.6% year over year. We expect same-store revenues to rise 3% year over year, while same-store net operating income (NOI) is projected to grow 3.3% year over year. Further, we expect interest expenses to increase 7.6% year over year in the first quarter. The Zacks Consensus Estimate of $746.93 million for first-quarter revenues suggests a 4.78% year-over-year jump. Before the first-quarter earnings release, the company’s activities were inadequate to gain analysts’ confidence. The Zacks Consensus Estimate for the quarterly core FFO per share has been revised a cent south to $2.80 over the past month. However, it suggests year-over-year growth of 3.7%. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)Here is What Our Quantitative Model Predicts for AVB: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 4(Sell) and has an Earnings ESP of +0.21%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.Stocks That Warrant a LookHere are two stocks from the broader REIT sector — Welltower Inc. WELL and Camden Property Trust CPT — that you may want to consider, as our model shows that these have the right combination of elements to report a surprise this quarter.Welltower, scheduled to report quarterly numbers on April 28, has an Earnings ESP of +1.69% and carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.Camden Property Trust is slated to report quarterly numbers on May 1. CPT has an Earnings ESP of +0.26% and carries a Zacks Rank of 3 at present.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.Zacks Names #1 Semiconductor StockIt's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom.With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.See This Stock Now for Free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report AvalonBay Communities, Inc. (AVB): Free Stock Analysis Report Camden Property Trust (CPT): Free Stock Analysis Report Welltower Inc. (WELL): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks