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AvalonBay (AVB) Raises Q3 Projections, Acquires Properties

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AvalonBay Communities, Inc. AVB recently raised its third-quarter total residential rental revenue projection for the same-store communities on lower-than-expected uncollectible lease revenues, and better-than-expected effective lease rates and occupancy. This residential REIT witnessed higher-than-anticipated delinquent rent payments from COVID-19 rental assistance programs.

Particularly, in its recently-released third-quarter operating update, the company noted that it expects total residential rental revenues for same-store communities to inch up 0.9-1.1% from the prior-year period. At the mid-point, this is 180 basis-points (bps) higher than the forecast issued on Jul 28.

While the total average physical occupancy of 96.3% in September is flat with the August level, it is up 30 basis points from July and 40 bps from the second quarter. Also, the average like-term effective rent change of 11% in September increased from August’s 8.1%, July’s 5% and second quarter’s negative 1.3%.

AvalonBay also witnessed an increase in the average move-in rent value, which, in September 2021 (as of Sep 22), was roughly 24% above the December 2020 level and 6% ahead of the September 2019 mark.

During the third quarter, the company has also acquired a number of properties. In Flower Mound, TX, it acquired The Nexus Lakeside for around $117 million. This property comprises 425 apartment homes and approximately 18,000 square feet of commercial space. In Charlotte, NC, the company acquired Hub South End for nearly $104 million and Three 30 Five for roughly $53 million.

Markedly, the U.S. apartment market put up an encouraging show in August, as its performance continued to pick up pace in the month, setting new records for rent growth and occupancy.

Per a report from the real estate technology and analytics firm RealPage, occupancy is at a new all-time record level, reaching 97.1%. In fact, August 2021 marked the first time that occupancy has ever surpassed the 97% level. Robust occupancy is also fueling rent growth, and effective asking prices for new renters climbed 1.8% in August, in turn, pushing asking prices up 10.3%, year over year. In addition, renters signing renewal leases in August witnessed price increases averaging 5.2%. Rent growth has also been widespread. While the small metros are witnessing robust occupancy, the gateway markets too are seeing a decent increase in the effective asking rents.

After living with parents during the onset of the pandemic, young adults are now forming new households, in turn, driving demand for the moderately priced apartments, while a better job-market, particularly for the high-paying employment sectors than in the low-wage positions, is triggering demand for luxury units, per the report.

These favourable trends are raising hopes for residential REITs, including AvalonBay, Equity Residential EQR, Essex Property ESS and UDR Inc. UDR.

In fact, Equity Residential, in its recently-released operating update, noted that it is concluding a strong leasing season, witnessing healthy demand and pricing for the company’s apartment units. Management, therefore, noted that its same-store revenue growth is on track to meet or slightly surpass the company’s projections mentioned in its second-quarter 2021 earnings release.

Also, Essex Property Trust has reaffirmed its third-quarter and full-year 2021 guidance ranges. The REIT’s preliminary August update revealed that the same-property cash delinquencies stood at 0.8% for the month compared with July’s 2.2% and the second quarter’s 2.6%, while financial occupancy was 96.4% in August compared with July’s 96.5%. For the preliminary July-to-August period, the total same-property revenues increased 2.6% year on year, as against the 3% decrease seen in the second quarter.

Here’s the price performance chart of the above-mentioned residential REITs in the past six months.

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Zacks Investment Research

Image Source: Zacks Investment Research

Currently, AvalonBay, Equity Residential, and UDR Inc. carry a Zacks Rank #2 (Buy), while Essex Property has a Zacks Rank of 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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AvalonBay Communities, Inc. (AVB) : Free Stock Analysis Report

Equity Residential (EQR) : Free Stock Analysis Report

United Dominion Realty Trust, Inc. (UDR) : Free Stock Analysis Report

Essex Property Trust, Inc. (ESS) : Free Stock Analysis Report

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