AvalonBay Earnings: Expense Growth Higher Than Revenue Growth, in Line With Our Expectations

AvalonBay Communities reported fourth-quarter results that were relatively in line with our expectations, leading us to reaffirm our $223 fair value estimate for the no-moat company. Same-store occupancy sequentially improved by 10 basis points to 95.6%, matching our estimate. Average rental rates increased 3.3% year over year, also matching our estimate for the fourth quarter. As a result, AvalonBay reported same-store revenue growth of 3.2%. However, operating expense growth remains elevated, with the company reporting expense growth of 5.4% in the fourth quarter. While same-store net operating income was only 2.3%, that was relatively in line with our 2.1% estimate. AvalonBay reported core funds from operations of $2.80 per share, which was slightly below our $2.84 estimate but ahead of the $2.74 figure the company reported in the fourth quarter of 2023.