AvalonBay Earnings: Slight Occupancy Decline and High Expense Growth Lead to Lower NOI Growth

Third-quarter results for AvalonBay Communities were slightly below our expectations, though we didn’t see anything that would materially change our $221 fair value estimate. Same-store occupancy fell 40 basis points to 95.6%, below our estimate of occupancy remaining flat at 96.0%. Average rental rates were up 3.2% year over year, in line with our estimate of 3.0% growth, and same-store revenue grew 3.1% year over year, slightly better than our estimate of 2.8% growth. However, same-store operating expenses were up 5.4%, leading to same-store net operating income growth of 2.0%, slightly below our 2.7% estimate. AvalonBay reported that core funds from operations rose 3.2% year over year to $2.74 per share in the third quarter, slightly below our $2.77 estimate.