Why Is AvalonBay (AVB) Down 2.7% Since Last Earnings Report?

It has been about a month since the last earnings report for AvalonBay Communities (NYSE:AVB). Shares have lost about 2.7% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is AvalonBay due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

AvalonBay Tops Q4 FFO Estimates, Hikes Dividend Rate

AvalonBay Communities’ fourth-quarter 2019 core FFO per share of $2.43 increased 5.2% year over year. The figure also surpassed the Zacks Consensus Estimate of $2.40.

Results reflected increase in average rental rates and economic occupancy. The residential REIT also announced a 4.6% increase in its quarterly dividend payout.

Total revenues of $593.6 million were up 2.6% year over year. However, the figure narrowly missed the Zacks Consensus Estimate of $594.1 million.

For 2019, the company’s reported core FFO per share of $9.34 increased 3.8% from $9.00 in the prior year and also beat the Zacks Consensus Estimate of $9.31. Total revenues of $2.3 billion rose 1.8% year on year.

Quarter in Detail

In the reported quarter, revenues from established communities improved 2.5% year over year to $463.3 million. Results reflect a 2.4% increase in average rental rates and 0.1% growth in economic occupancy.

Operating expenses for established communities rose 2.6% on a year-over-year basis. Consequently, NOI from established communities increased 2.5% year on year to around $335.5 million.

During the fourth quarter, the company acquired Avalon Toscana in Margate, FL, comprising 240 apartment homes for $60.25 million. The company also acquired an unencumbered 265 apartment home community located in Cambridge, MA — AVA North Point. This property was previously held in an unconsolidated joint venture, in which the company had a 55% ownership stake. Thus, the company paid $71.28 million for its venture partner's 45% interest in the community.

Further, during the quarter, the company completed the development of three apartment communities — Avalon Boonton, in Boonton, NJ; Avalon Belltown Towers, in Seattle, WA; and
Avalon Saugus, in Saugus, MA — comprising a total of 904 apartment homes and 34,000 square feet of retail space, for a total capital cost of $333 million.

As of Dec 31, 2019, AvalonBay had 22 development communities under construction (expected to contain 6,960 apartment homes and 64,000 square feet of retail space). The estimated total capital cost at completion for these development communities is $2.54 billion at share.

Balance Sheet Position

As of Dec 31, 2019, AvalonBay did not have any borrowings outstanding under its $1.75-billion unsecured credit facility. The company had around $127.6 million in unrestricted cash and cash in escrow as of the same date. In addition, the company’s annualized net debt-to-core EBITDAre for the October-December quarter was 4.6 times.

Moreover, during the fourth quarter, the company issued 947,868 shares of common stock at a settlement price of $207.96 per share, generating net proceeds of $197.1 million. This was pursuant to the forward equity sale contract entered in September 2019.

Outlook

For 2020, the company expects core FFO per share of $9.62-$10.02. The outlook is based on assumption for established communities’ revenue growth of 2.2-3.2%, operating expense rise of 1.3-2.3% and NOI expansion of 2.5-3.5%.

Dividend Hike

On Feb 5, AvalonBay’s board of directors announced the first-quarter 2020 dividend of $1.59 per share. This marks a 4.6% increase from the prior quarterly dividend payout of $1.52 per share. The raised dividend will be paid on Apr 15, to common stockholders of record as of Mar 31, 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, AvalonBay has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, AvalonBay has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.