Company Reports

Vivmark Residential is the result of the merger of Avalonbay Communities and Equity Residential. The combined company owns and operates high-quality multifamily buildings in urban and suburban coastal markets with demographics that allow the company to maintain high occupancies and drive strong rent growth, specifically, New England, New York/New Jersey, the mid-Atlantic, Southern California, Northern California, and Seattle. These markets exhibit traits that create strong demand for apartments, such as job growth, income growth, decreasing homeownership rates, high relative cost of single-family housing, and attractive urban centers that attract younger people. The company regularly recycles capital by selling noncore assets or exiting markets and using the proceeds to fund its development pipeline or acquisitions with promising growth prospects, a sound strategy that continues to produce strong returns.

AvalonBay Communities owns and operates high-quality multifamily buildings in urban and suburban coastal markets with demographics that allow the company to maintain high occupancies and drive strong rent growth, specifically, New England, New York/New Jersey, the mid-Atlantic, Southern California, Northern California, and Seattle. These markets exhibit traits that create strong demand for apartments, such as job growth, income growth, decreasing homeownership rates, high relative cost of single-family housing, and attractive urban centers that attract younger people. The company regularly recycles capital by selling noncore assets or exiting markets and using the proceeds to fund its development pipeline or acquisitions with promising growth prospects, a sound strategy that continues to produce strong returns.

Avalonbay Communities reported core funds from operations of $2.86 per share and same-store net operating income growth of 1.0% for the second quarter.

Avalonbay Communities and Equity Residential jointly announced the companies would merge as equals in an all-stock transaction.

AvalonBay Communities reported core funds from operations of $2.83 per share and same-store net operating income growth of 0.2% for the first quarter.

AvalonBay Communities owns and operates high-quality multifamily buildings in urban and suburban coastal markets with demographics that allow the company to maintain high occupancies and drive strong rent growth, specifically, New England, New York/New Jersey, the mid-Atlantic, Southern California, Northern California, and Seattle. These markets exhibit traits that create strong demand for apartments, such as job growth, income growth, decreasing homeownership rates, high relative cost of single-family housing, and attractive urban centers that attract younger people. The company regularly recycles capital by selling noncore assets or exiting markets and using the proceeds to fund its development pipeline or acquisitions with promising growth prospects, a sound strategy that continues to produce strong returns.

AvalonBay Communities reported core funds from operations of $2.85 per share and same-store net operating income growth of 1.3% for the fourth quarter.

AvalonBay Communities reported core funds from operations of $2.75 per share and same-store net operating income growth of 1.1% for the third quarter.

AvalonBay Communities owns and operates high-quality multifamily buildings in urban and suburban coastal markets with demographics that allow the company to maintain high occupancies and drive strong rent growth, specifically, New England, New York/New Jersey, the mid-Atlantic, Southern California, Northern California, and Seattle. These markets exhibit traits that create strong demand for apartments, such as job growth, income growth, decreasing homeownership rates, high relative cost of single-family housing, and attractive urban centers that attract younger people. The company regularly recycles capital by selling noncore assets or exiting markets and using the proceeds to fund its development pipeline or acquisitions with promising growth prospects, a sound strategy that continues to produce strong returns.

Avalonbay Communities reported core funds from operations of $2.82 per share and same-store net operating income growth of 2.7% for the quarter.

AvalonBay Communities owns and operates high-quality multifamily buildings in urban and suburban coastal markets with demographics that allow the company to maintain high occupancies and drive strong rent growth, specifically, New England, New York/New Jersey, the mid-Atlantic, Southern California, Northern California, and Seattle. These markets exhibit traits that create strong demand for apartments like job growth, income growth, decreasing homeownership rates, high relative cost of single-family housing, and attractive urban centers that draw younger people. The company regularly recycles capital by selling noncore assets or exiting markets and using the proceeds for its development pipeline or acquisitions with promising growth prospects, a sound strategy that continues to produce strong returns.

AvalonBay Communities reported a mixed start to the year, as better-than-expected occupancy rates were offset by weaker-than-expected rental rate growth during the first quarter. As we incorporate the first-quarter results, in addition to the early second-quarter results, we view shares as modestly undervalued and will maintain our $232 fair value estimate for the no-moat company.

AvalonBay Communities owns and operates high-quality multifamily buildings in urban and suburban coastal markets with demographics that allow the company to maintain high occupancies and drive strong rent growth, specifically, New England, New York/New Jersey, the mid-Atlantic, Southern California, Northern California, and Seattle. These markets exhibit traits that create strong demand for apartments like job growth, income growth, decreasing homeownership rates, high relative cost of single-family housing, and attractive urban centers that draw younger people. The company regularly recycles capital by selling noncore assets or exiting markets and using the proceeds for its development pipeline or acquisitions with promising growth prospects, a sound strategy that continues to produce strong returns.

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.

AvalonBay Communities owns and operates high-quality multifamily buildings in urban and suburban coastal markets with demographics that allow the company to maintain high occupancies and drive strong rent growth, specifically, New England, New York/New Jersey, the mid-Atlantic, Southern California, Northern California, and Seattle. These markets exhibit traits that create strong demand for apartments like job growth, income growth, decreasing homeownership rates, high relative cost of single-family housing, and attractive urban centers that draw younger people. The company regularly recycles capital by selling noncore assets or exiting markets and using the proceeds for its development pipeline or acquisitions with promising growth prospects, a sound strategy that continues to produce strong returns.

Over the past few years, we have observed an inverse relationship between share prices in the REIT sector and interest-rate movements. We believe a major reason is that all commercial real estate valuations are connected to interest rates. Capitalization rates directly indicate the return expectations for a real estate investment and expectations for risk and growth. Historically, we have observed that commercial real trades at cap rates consistently spread above the 10-year US Treasury. If interest rates rise, investors will require a higher return, and thus a higher cap rate, to accept the risk associated with an investment in a real estate asset. Since return expectations have held relatively steady for most real estate sectors over the past few years, higher cap rates translate to falling prices for real estate.

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.

The REIT sector in the US offers many companies that should see relatively stable cashflow growth over the next several years. While the pandemic hurt REIT valuations in 2020, the recovery of fundamentals across most sectors combined with low interest rates led to strong total returns in 2021 and early 2022. However, despite fundamentals continuing to perform well over the past three years with many reaching historical levels of net operating income growth, the REIT sector underperformed the broader equity markets in 2023 and into the first half of 2024. We believe that is due to the sector’s negative correlation with interest rates, as income-oriented investors rotate out of the sector, higher rates lower the value REITs can create with external growth, and property valuations fall in line with higher rates. However, interest rates have fallen since the end of July, leading to a rally for the REIT sector. Still, we still view many of companies in the US REIT sector as being undervalued as the companies should continue to produce solid long-term growth.

Despite a rally over the past two months, we still view the US REIT sector as being undervalued. While the pandemic hurt REIT valuations in 2020, the recovery of fundamentals across most sectors led combined with low interest rates led to strong total returns in 2021 and early 2022. However, despite fundamentals continuing to perform well over the past three years, with many reaching historical levels of net operating income growth, the REIT sector has underperformed the broader equity markets in 2023 and into the first half of 2024. We believe that the cause has been due to the sector's negative correlation with interest rates as income-oriented investors rotate out of the sector, higher rates lower the value REITs can create with external growth, and property valuations fall in line with higher rates. However, interest rates have fallen since the end of July, leading to a rally for the REIT sector. We believe that US REITs will continue to see share price movements that are inverse of interest rate movements.

Avalonbay Communities reported second-quarter results that were relatively in line with our expectations, giving us confidence in our $221 fair value estimate for the no-moat company. Same-store occupancy improved 10 basis points sequentially to 96.0% in the second quarter. Since average rental rates were up 3.2% year over year, same-store revenue was also up 3.2%, which was relatively in line with our estimate of 2.9% growth. Same-store operating expenses were up slightly higher at 3.8% in the quarter, so same-store net operating income, or NOI, growth was 3.0%, though that was better than our estimate of 2.7% same-store NOI growth. The company reported core funds from operations, or FFO, of $2.77 per share in the second quarter, which was a penny better than our $2.76 estimate and nine cents better than the $2.68 guidance management had previously given for the second quarter.