Key Points
- EPS surpassed management's expectations at $1.78, but dropped year over year.
- Core FFO per share exceeded the upper range of management's guidance.
- Operating expenses rose by 3.8%, pressuring profit margins.
AvalonBay Communities (AVB 0.01%), a major player in the multifamily apartment community space, released a mixed set of second-quarter results on July 31. The real estate investment trust's earnings per share (EPS) of $1.78 exceeded management’s guidance range of $1.65 to $1.70, but was a significant drop from the $2.59 it booked in the prior-year period. Core funds from operations (FFO) per share came in at $2.77, above the guidance range of $2.63 to $2.73. However, operating expenses rose.
| Metric | Q2 2024 Result | Q2 2024 Guidance | Q2 2023 Result | % Change (YoY) |
|---|---|---|---|---|
| EPS | $1.78 | $1.65 to $1.70 | $2.59 | (31.3%) |
| FFO per share | $2.75 | $2.59 to $2.69 | $2.67 | 3.0% |
| Core FFO per share | $2.77 | $2.63 to $2.73 | $2.66 | 4.1% |
| Operating expenses | $204.1 million | N/A | $196.7 million | 3.8% |
| Source: Management's guidance from the Q1 report on April 25. |
Company Overview
AvalonBay Communities develops and manages multifamily apartment communities across major metropolitan areas in the United States. It targets regions characterized by strong employment growth, elevated homeownership costs, and high-quality life amenities. Its strategy includes geographic diversification, and it has a significant presence in New England, California, the Mid-Atlantic, and expansion markets such as Raleigh-Durham and Denver.
Recently, AvalonBay has centered on expanding its portfolio through new developments, redevelopment of existing properties, and acquisitions. In Q2 2024, notable events included the completion of three communities and the commencement of construction on three more. Notable projects include Avalon Amityville, Avalon Montville, and Avalon Redmond Campus.
Quarterly Highlights and Achievements
In Q2, AvalonBay's same store residential net operating income (NOI) ticked up by $13 million (3%), to $462 million. This positive variance was primarily driven by increased revenues rather than cost control, highlighting robust operational performance in high-demand regions.
However, same store residential operating expenses increased by $7 million (3.8%) to $204 million. Rising costs may place future pressure on profit margins.
Additionally, AvalonBay maintained its momentum in development. Its capital expenditure strategy included significant investments, including the ongoing development of 901 apartment homes with a total capital cost of $351 million. Acquisitions continued to bolster the portfolio, with notable purchases including a Lewisville, Texas, complex for $62.1 million that it rebranded as Avalon at Pier 121.
Effective property management is another key focus area, as reflected by improvements in occupancy and revenue collection. AvalonBay's strategy of leveraging multiple brands, including Avalon, AVA, Eaves by Avalon, and Kanso, has aided it in capturing diverse market segments and optimizing occupancy rates across various economic conditions.
Looking Ahead
For Q3, AvalonBay projects EPS in the range of $2.69 to $2.79, with FFO per share anticipated at $2.59 to $2.69, and core FFO per share expected between $2.66 and $2.76. For the full year, the company raised its guidance: It now expects EPS will land between $7.34 to $7.54, and core FFO per share in the $10.92 to $11.12 range. This upward trend in guidance indicates continued confidence from management, despite the challenges posed by rising operating expenses.
