AvalonBay's Rental Revenue Growth Decelerates, Shares Dip

Residential REIT, AvalonBay Communities, Inc. (NYSE:AVB) revealed that its year-over-year total rental revenue change for established communities came in at 2.5% for the month of May. This underlines a slowdown from 2.6% growth registered in April and 3.2% increase in first-quarter 2017. Reflecting negative sentiments, shares of AvalonBay descended over 2.7% during normal trading hours on Jun 6.

Further, the company noted that it expects total rental revenue of established communities for second-quarter 2017 to grow 2.5–2.6% over the prior-year period.

Notably, established communities refer to those communities that have stabilized operations as of Jan 1, 2016, and are neither executing nor planning any significant redevelopment work during the current year.

Admittedly, completion of a number of projects in its markets leading to higher supply is a concern for AvalonBay, as elevated supply usually leads to lesser absorption, curtails landlord’s capability to demand more rents and leads to a rise in concession activity. As such, growth in the company’s stabilized portfolio is likely to be moderated in the near term. Nevertheless, the company has a solid portfolio of high quality assets in premium locations. In addition, its balance sheet remains healthy.

AvalonBay currently has a Zacks Rank #3 (Hold).

Over the past three months, AvalonBay’s shares outperformed the Zacks categorized REIT and Equity Trust - Residential industry. The company’s shares logged in a return of 6.7% against 4.2% growth recorded by the industry.



Stocks to Consider

Better-ranked stocks in the REIT space include Equity LifeStyle Properties, Inc. (NYSE:ELS) , Prologis, Inc. (NYSE:PLD) and PS Business Parks, Inc. (NYSE:PSB) . All three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Equity LifeStyle Properties currently has a long-term growth rate of 4.7%.

Prologis’ estimates for 2017 funds from operations (“FFO”) per share moved north nearly 3.8% to $2.76, over the past 60 days.

PS Business Parks’ estimates for 2017 FFO per share inched up 1.8% to $6.09, over the past 30 days.

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.


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