AvalonBay Communities, Inc. (AVB) is a leading real estate investment trust (REIT) that develops, redevelops, acquires, and operates multifamily apartment communities in high-barrier-to-entry markets across the United States. AVB has established a strong presence in New England, the New York/New Jersey metro area, the Mid-Atlantic, the Pacific Northwest, and Northern and Southern California, as well as in its expansion regions of Raleigh-Durham and Charlotte, North Carolina, Southeast Florida, Dallas and Austin, Texas, and Denver, Colorado.

Business Overview

AVB's portfolio consists of 299 operating apartment communities containing 90,673 apartment homes, of which 17 communities were under development as of March 31, 2024. AvalonBay also owned or held a direct or indirect ownership interest in land or rights to land on which it expects to develop an additional 32 communities that, if developed as expected, will contain an estimated 11,167 apartment homes.

Financials

In the fiscal year ended December 31, 2023, AVB reported annual net income of $928,825,000, annual revenue of $2,824,455,000, annual operating cash flow of $1,565,497,000, and annual free cash flow of $1,368,223,000. For the first quarter of 2024, AvalonBay reported net income of $173,557,000 and revenue of $712,859,000.

AVB's strong performance in the first quarter of 2024 exceeded the company's prior expectations, with core FFO growth of 5.1% and same-store revenue growth of 4.2%, which was 90 basis points better than AvalonBay's prior outlook. This outperformance was driven by higher-than-expected occupancy, improved bad debt, and positive rental rate momentum across AVB's portfolio.

AvalonBay's same-store residential revenue, including parking and other ancillary residential revenue, increased by 4.2% year-over-year in the first quarter of 2024, primarily due to a 4.4% increase in average monthly revenue per occupied home and a 0.2% decrease in economic occupancy. The increase in revenue was partially offset by a 5.2% increase in same-store residential property operating expenses, excluding property taxes.

Geographic Diversification

AVB's geographic diversification has been a key strength, as AvalonBay's suburban coastal portfolio, which accounted for 71% of its portfolio as of March 31, 2024, has faced significantly less new supply compared to many of its peers' markets. In AVB's established regions, deliveries are expected to be 1.5% of stock in 2024, in line with historical averages, while in the Sunbelt region, deliveries are expected to be 3.8% of stock, significantly above historical averages.

This dynamic has allowed AVB to capitalize on the strong demand for rental housing in its markets, particularly as the cost of homeownership has become increasingly unaffordable relative to renting. AvalonBay estimates that it is more than $2,000 per month more expensive to own a home versus rent in its markets, which has contributed to a record low level of residents moving out to purchase a home.

Outlook

Given AVB's first-quarter outperformance, improved underlying trends, and positive outlook for the peak leasing season, AvalonBay has increased its full-year 2024 core FFO guidance to $10.91 per share, a 2.6% increase compared to 2023. AVB now expects same-store revenue growth of 3.1% for the full year, up from its previous guidance of 2.6%.

AvalonBay's development pipeline remains a key driver of future growth, with 17 wholly-owned communities under construction, which are expected to contain 6,064 apartment homes with a projected total capitalized cost of $2,500,000,000. AVB's development communities have continued to outperform, delivering rents that are 10% above initial underwriting and generating a 40-basis-point increase in yield.

Liquidity

AVB's strong balance sheet and ample liquidity, with $423,550,000 in cash, cash equivalents, and restricted cash as of March 31, 2024, position it well to capitalize on growth opportunities, both through development and strategic acquisitions. AvalonBay's net debt-to-core EBITDAre ratio was 4.3x in the first quarter of 2024, and AVB had 95% of its NOI unencumbered, providing flexibility to access additional secured debt capital if needed.

Conclusion

Overall, AVB's solid first-quarter performance, positive outlook, and strong financial position make it well-positioned to continue delivering value for its shareholders. AvalonBay's focus on high-barrier-to-entry markets, strategic capital allocation, and operational excellence position it for continued growth in the years ahead.