Analyst Note| Kevin Brown |
AvalonBay ended 2020 with another disappointing quarter, though nothing in the fourth-quarter earnings release significantly changes our long-term view or $194 fair value estimate for the no-moat company. The one bright spot in the quarter was occupancy for the established portfolio increasing 140 basis points sequentially to 94.4%, far better than our estimate of a 50-basis-point decline. However, rate growth fell far more than we had anticipated, down 7.0% year over year compared with our estimate of a 2.7% decline. The difference is due almost entirely to significant rent concessions and recognition of uncollectible lease revenue, both of which should be short term. Still, same-store residential revenue declined 7.6%, while operating expenses, driven by high marketing costs and high repair costs that had been deferred from earlier in the year, rose 5.8%. As a result, portfolio net operating income fell 14.3%, while core funds from operations fell 16.9% year over year in the fourth quarter to $2.02 per share.