AvalonBay Communities, Inc. AVB reported a 10.5% increase in same-store residential rental revenues for the two months ended Feb 28, 2023 compared with the prior-year period. This is in sync with the company’s initial expectation, which was published on Feb 8, 2023.

In the recently released first-quarter operating update, AvalonBay reported that the economic occupancy for its same-store residential communities improved to 96.2% in February from 95.8% in January. This also marked an increase from 95.6% in December 2022.

The like-term effective rent change for same-store residential communities improved to 4.2% in February from 3.7% in January. The figure also marked an increase from 3.8% in December. Moreover, renewal offers for March and April 2023 were delivered to residents at an average increase in the 7% range over the existing lease.

According to the company’s projection issued during the fourth-quarter earnings release, for 2023, AVB expected core funds from operations (FFO) per share between $10.06 and $10.56, indicating a 5.3% increase at the midpoint of $10.31. The Zacks Consensus Estimate for the same presently stands at $10.42.

The full-year projections are based on management’s expectation for same-store residential revenue growth of 4.0-6.0% and an operating expense increase of 5.75-7.25%. Consequently, same-store residential NOI is projected to expand 3.0-5.5%.

For the first quarter of 2023, AvalonBay expected core FFO per share in the range of $2.47-$2.57. The Zacks Consensus Estimate for the same is currently pegged at $2.55.

AvalonBay is well-poised to benefit from the healthy demand for its residential properties in key regions and portfolio diversification efforts in the urban and suburban markets. The company is banking on technology and scale to drive innovation and margin expansion.

AVB’s portfolio is weighted toward regions and submarkets with structural advantages. The barriers to homeownership continue to support apartment demand in the company’s established regions.

Moreover, AvalonBay’s long-term growth is likely to be supported by its strategic buyouts and development projects. A solid balance sheet position bodes well. However, the rising supply in certain markets and interest rate hikes are concerning.

Currently, AvalonBay carries a Zacks Rank of 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of AVB have increased 2.9%, while its industry has risen 2.4% over the past three months.

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Stocks to Consider

Some key picks from the REIT sector include Alexandria Real Estate Equities, Inc. ARE and NexPoint Residential Trust, Inc. NXRT.

Alexandria Real Estate Equities holds a Zacks Rank of 2 (Buy) at present. Alexandria Real Estate Equities’ long-term growth rate is projected at 7.70%

Currently, NexPoint Residential Trust carries a Zacks Rank of 2. NXRT's long-term growth rate is projected at 8.00%.

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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