AvalonBay Communities (NYSE:AVB) Q3 2025 Earnings Call October 30, 2025 01:00 PM ET Company ParticipantsBen Schall - CEO and PresidentSteve Sakwa - Senior Managing DirectorKevin O'Shea - CFOSean Breslin - COOJohn Pawlowski - Managing DirectorMatt Birenbaum - Chief Investment OfficerMatthew Grover - Senior Director of Investor RelationsAlex Kim - Equity Research Senior AssociateRich Hightower - Managing DirectorConference Call ParticipantsMike Coto - VP and Equity Research AnalystNick Joseph - Senior Equity ...

AvalonBay Communities (NYSE:AVB) Q3 2025 Earnings Call October 30, 2025 01:00 PM ET Company ParticipantsBen Schall - CEO and PresidentKevin O'Shea - CFOSteve Sakwa - Senior Managing DirectorSean Breslin - COOJohn Pawlowski - Managing DirectorMatthew Grover - Senior Director of Investor RelationsMatt Birenbaum - CIOConference Call ParticipantsAustin Worschmidt - AnalystJohn Kim - AnalystAlexander Goldfarb - AnalystNick Joseph - Senior Equity Research AnalystJamie Feldman - AnalystMike On - AnalystAmy - Analy ...

Financial Data and Key Metrics Changes - The company reported a core FFO per share guidance reduction of $0.14 to $11.25, reflecting a year-over-year earnings growth expectation of 2.2% [12][13] - Same-store residential revenue growth is now projected at 2.5%, with operating expense growth at 3.8%, leading to same-store residential NOI growth of 2% [12][16] Business Line Data and Key Metrics Changes - The third-quarter core FFO per share results were $0.05 below prior expectations, with $0.03 attributed to same-store portfolio results, including lower revenue and higher operating expenses [9][13] - The company expects same-store revenue growth to be 2.5% for the full year, down 30 basis points from mid-year outlook, primarily due to average lease rate and economic occupancy [16][18] Market Data and Key Metrics Changes - Apartment demand has softened due to reduced job growth, with the National Association of Business Economics projecting only 725,000 jobs in 2025, down from over 1 million [9][10] - The Mid-Atlantic region has seen a decline in job growth, with expectations of continued weakness due to a government shutdown [17][19] Company Strategy and Development Direction - The company is focusing on a $3 billion project pipeline under construction, expected to generate significant earnings uplift in 2026 and 2027 [5][6] - The company is strategically increasing development activity while the industry retrenches, taking advantage of lower costs and subdued competition [24][21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the portfolio's positioning due to low new supply levels and a lack of affordable housing alternatives [18][19] - The company anticipates a challenging revenue environment but expects to benefit from a low level of new supply and improving bad debt metrics in 2026 [19][20] Other Important Information - The company repurchased $150 million of its stock at an average price of $193 per share during Q3 [6] - The balance sheet remains strong with low leverage and over $3 billion in available liquidity, providing flexibility for future investments [6][12] Q&A Session Summary Question: How is the company looking at the next crop of projects and capital allocation decisions? - The company emphasized its strong balance sheet and plans for $1 billion in development starts for 2026, focusing on established regions with stable operating fundamentals [26][28] Question: Will the company reduce exposure in Southern California and the Mid-Atlantic? - Management indicated a strategy to reduce exposure in these markets while increasing focus on Northern Virginia and other stable areas [31][32] Question: What drove the repair and maintenance cost surprises? - The company experienced higher costs due to various factors, including unit conditions and unexpected repairs, leading to a higher cost per turn [44][45] Question: How is the company managing lease-up performance in Denver? - Lease-ups in Denver have been slower than expected, with concessions averaging 150% of a month's rent, but one community has stabilized [50][52] Question: What is the outlook for bad debt and its impact on the portfolio? - Bad debt is expected to improve as the company processes existing cases, with a projected benefit of at least 15 basis points in 2026 [66][67]

Core Insights - AvalonBay Communities (AVB) reported Q3 2025 core funds from operations (FFO) per share of $2.75, missing the Zacks Consensus Estimate of $2.81, but slightly up from $2.74 in the prior year [1][9] - The company lowered its 2025 core FFO per share and same-store residential revenue growth outlook following the Q3 results, despite a marginal year-over-year increase in occupancy [2][11] Financial Performance - Total revenues for Q3 2025 were $766.8 million, missing the Zacks Consensus Estimate of $769.9 million, but representing a 4.4% increase year-over-year [2][9] - Same-store residential revenues rose 2.3% year-over-year to $685.4 million, while same-store operating expenses increased by 4.6% to $224.3 million, resulting in a 1.1% increase in same-store residential NOI to $461 million [3][9] - Interest expenses increased by 17.3% year-over-year to $65.4 million, exceeding estimates [4] Portfolio Activity - During Q3, the company acquired three wholly-owned communities with 584 apartment homes for approximately $186.95 million and a 50% interest in Avalon Alderwood Place for $71.25 million [5] - The company sold six wholly-owned communities containing 1,594 apartment homes for $585.08 million and completed the development of Avalon Annapolis, which has 508 apartment homes at a total capital cost of $195 million [6] Development Pipeline - As of September 30, 2025, AvalonBay had 21 wholly-owned development communities under construction, expected to contain 7,806 apartment homes and 100,000 square feet of commercial space, with an estimated total capital cost of $3.01 billion [7] Balance Sheet Position - As of September 30, 2025, AvalonBay had $123.3 million in unrestricted cash and cash equivalents, with no borrowings under its credit facility and nearly $235 million outstanding under its unsecured commercial paper program [8] 2025 Outlook - For the full year 2025, AvalonBay revised its core FFO per share outlook to a range of $11.15-$11.35, down from the previous range of $11.19-$11.59, indicating a growth of 2.2% at the midpoint [11] - The company expects same-store residential revenue growth of 2.5% and same-store NOI growth of 2.0%, both lower than previous guidance [12]

INVESTOR TELECONFERENCE PRESENTATION THIRD QUARTER 2025 OCTOBER 30, 2025 Avalon at the Hingham Shipyard Hingham, MA [FAVORABLE SUPPLY BACKDROP FOR ESTABLISHED REGIONS PERSISTS, WHILE THE SUNBELT CONTINUES TO DIGEST STANDING INVENTORY] [SUBURBAN COASTAL PORTFOLIO POSITIONED TO OUTPERFORM] See Appendix for information about forward- looking statements and definitions and reconciliations of non-GAAP financial measures and other terms. For the reasons described in the referenced forward-looking statements, our ...

Financial Performance - Q3 2025 diluted EPS increased to $2.68, up 2.7% from $2.61 in Q3 2024; YTD 2025 EPS rose to $6.22, a 10.7% increase from $5.62 in YTD 2024[3][5] - Q3 2025 FFO per share reached $3.01, a 4.5% increase from $2.88 in Q3 2024; YTD 2025 FFO per share was $8.60, up 2.9% from $8.36 in YTD 2024[3][5] - Q3 2025 total revenue increased by 4.4% to $766.8 million compared to Q3 2024, with year-to-date revenue up 4.6% to $2.27 billion[53] - Net income attributable to common stockholders for Q3 2025 was $381.3 million, a 2.4% increase from Q3 2024, while year-to-date net income rose 10.8% to $886.6 million[53] - Funds from operations (FFO) for Q3 2025 reached $432.0 million, reflecting a 5.2% increase year-over-year, with year-to-date FFO at $1.23 billion, up 3.4%[53] Revenue and Occupancy - Same Store Residential revenue for Q3 2025 increased by $15.1 million, or 2.3%, to $685.36 million; operating expenses rose by $9.91 million, or 4.6%, to $224.31 million[7] - Economic occupancy for same store properties was reported at 95.7% for Q3 2025, slightly down from 96.2% in the previous quarter[59] - Average Monthly Revenue Per Occupied Home for Q3 2025 was $3,087, reflecting a 2.2% increase from Q3 2024[63] - Year-to-date (YTD) 2025 residential revenue increased by 2.7% to $2,043,888, compared to $1,989,405 in YTD 2024[71] - Economic occupancy rate for the total same store portfolio was 96.0%, slightly up from 95.9% in the previous year[71] Development and Acquisitions - The Company completed the development of Avalon Annapolis with 508 apartment homes at a total capital cost of $195 million during Q3 2025[9] - During the nine months ended September 30, 2025, the Company sold nine communities for $811.68 million, resulting in a net gain of $336.08 million[13] - The Company acquired eleven communities during the nine months ended September 30, 2025, totaling 3,285 apartment homes for $805.45 million[18] - As of September 30, 2025, AvalonBay Communities has 7,806 apartment homes under construction with a total capital cost of $3,012 million[88] - AvalonBay expanded the Avalon Pleasanton development by adding 280 apartment homes, with initial homes currently in lease-up[89] Financial Outlook - For Q4 2025, the projected EPS is between $1.18 and $1.28, while the projected FFO per share is between $2.76 and $2.86[31] - The full year 2025 financial outlook indicates a residential revenue change of 2.3% to 2.7% compared to full year 2024[32] - The October 2025 full year outlook for EPS is projected at $7.45, down from the July 2025 outlook of $7.95[34] - Projected EPS (diluted) for Q4 2025 is estimated to be between $1.18 and $1.28, while the full year 2025 projected EPS ranges from $7.35 to $7.55[129] - Projected FFO per share (diluted) for Q4 2025 is expected to be between $2.76 and $2.86, with full year 2025 projected FFO per share ranging from $11.31 to $11.51[129] Expenses and Costs - Total operating expenses for Q3 2025 increased by 7.7% year-over-year to $249.3 million, with residential operating expenses for same store properties at $224.3 million[59] - Total same store residential operating expenses increased by 4.1% to $643,686 in YTD 2025, compared to $618,241 in YTD 2024[76] - Property taxes for YTD 2025 rose by 2.3% to $230,904, influenced by increased assessments and the expiration of tax incentive programs[77] - Payroll costs increased by 3.7% to $118,143 in YTD 2025, primarily due to higher employee benefits and salaries[78] - Repairs and maintenance expenses grew by 7.7% to $120,485 in YTD 2025, driven by higher third-party labor costs and smart home technology deployment[78] Debt and Financial Ratios - The Company's annualized Net Debt-to-Core EBITDAre for Q3 2025 was 4.5 times, with Unencumbered NOI at 95% for the nine months ended September 30, 2025[22] - Total debt amounts to $8,784,124, with a weighted average interest rate of 3.6%[1] - Q3 2025 net debt-to-core EBITDAre ratio is 4.5x, indicating strong debt management[1] - Combined EBITDA to combined debt service ratio stands at 6.26x, well above the required 1.50x[1] - The company maintains compliance with all key debt covenants, including total outstanding indebtedness to capitalization value at 24.8%[1] Market Conditions and Risks - The Company’s financial outlook includes potential impacts from local market conditions and regulatory changes affecting revenue[40] - The Company emphasizes that forward-looking statements involve risks and uncertainties that may cause actual results to differ materially[44] - The company expects the amount of rent relief recognized to continue to decline in 2025, impacting uncollectible lease revenue[139] - Economic gain for disposed communities shows a net loss of $4,825 for Q3 2025, contrasting with a year-to-date economic gain of $104,989[1] - The Company considers NOI as a key performance measure, defined as total property revenue less direct operating expenses, excluding corporate-level income and other indirect costs[124]

Core Insights - AvalonBay Communities (AVB) reported revenue of $766.8 million for the quarter ended September 2025, reflecting a year-over-year increase of 4.4% [1] - The earnings per share (EPS) for the quarter was $2.75, up from $2.61 in the same quarter last year [1] - The reported revenue fell short of the Zacks Consensus Estimate of $769.88 million, resulting in a surprise of -0.4% [1] - The EPS also missed the consensus estimate of $2.81, with a surprise of -2.14% [1] Financial Metrics - Same Store Economic Occupancy was reported at 95.7%, slightly below the four-analyst average estimate of 96.1% [4] - Revenue from management, development, and other fees was $1.87 million, compared to the estimated $1.94 million, marking a 9% increase year-over-year [4] - Revenue from rental and other income was $764.93 million, slightly below the estimated $767.13 million, also reflecting a 4.4% increase compared to the previous year [4] - Net Earnings Per Share (Diluted) was reported at $2.68, significantly higher than the estimated $1.41 [4] Stock Performance - AvalonBay's shares have returned -4.7% over the past month, contrasting with the Zacks S&P 500 composite's increase of +3.8% [3] - The stock currently holds a Zacks Rank 4 (Sell), indicating potential underperformance relative to the broader market in the near term [3]

Core Insights - AvalonBay Communities (AVB) reported quarterly funds from operations (FFO) of $2.75 per share, missing the Zacks Consensus Estimate of $2.81 per share, representing an FFO surprise of -2.14% [1] - The company posted revenues of $766.8 million for the quarter ended September 2025, which was 0.4% below the Zacks Consensus Estimate, compared to $734.31 million in the same quarter last year [2] - AvalonBay shares have declined approximately 16.3% year-to-date, contrasting with the S&P 500's gain of 17.2% [3] Financial Performance - Over the last four quarters, AvalonBay has surpassed consensus FFO estimates two times [2] - The current consensus FFO estimate for the upcoming quarter is $2.91, with projected revenues of $778.21 million, while the estimate for the current fiscal year is $11.39 on $3.05 billion in revenues [7] Market Outlook - The estimate revisions trend for AvalonBay was unfavorable prior to the earnings release, resulting in a Zacks Rank 4 (Sell) for the stock, indicating expected underperformance in the near future [6] - The outlook for the REIT and Equity Trust - Residential industry is currently in the bottom 41% of over 250 Zacks industries, suggesting potential challenges for AvalonBay's stock performance [8]

Core Insights - AvalonBay Communities, Inc. (AVB) is set to announce its third-quarter 2025 results on October 29, 2025, after market close [1] - The U.S. apartment market has experienced a slowdown, with effective asking rents declining by 0.3% from July to September 2025, marking the first rent cut during this period since 2009 [3] - AvalonBay's third-quarter results are expected to reflect stable performance due to its high-quality apartment portfolio in premium markets, with projected same-store net operating income (NOI) growth of 2.2% and economic occupancy of 96.3% [8][11] Company Performance - In the last reported quarter, AvalonBay delivered a surprise of 0.71% in core funds from operations (FFO) per share, with an average beat of 0.46% over the past four quarters [2] - The Zacks Consensus Estimate for AvalonBay's third-quarter revenues is $772.14 million, indicating a year-over-year increase of 5.2% [11] - Core FFO per share is expected to be in the range of $2.75-$2.85, suggesting a year-over-year growth of 2.6% [12] Market Conditions - Approximately 637,000 market-rate apartments were absorbed in the year-ending third quarter of 2025, a decrease from nearly 784,900 units absorbed in the previous quarter [4] - Construction of about 474,800 units was completed nationwide over the past year, with 105,500 units completed in the third quarter [5] - Occupancy rates have slipped to 95.4%, down 30 basis points, ending five consecutive quarters of gains [5] Regional Insights - Rent declines have varied by region, with markets like Denver and Austin experiencing nearly 8% drops, while tech-heavy coastal hubs like San Francisco and New York saw modest rent growth [7] Future Outlook - AvalonBay's strategy of focusing on high-growth markets is expected to support stable rental income, although higher operating and interest expenses may temper gains [9][11] - The company has a Zacks Rank of 4 (Sell) and an Earnings ESP of +1.29%, indicating uncertainty regarding a surprise in FFO per share for the upcoming quarter [13][14]

Core Insights - Investors in AvalonBay Communities, Inc. (AVB) should monitor stock movements due to high implied volatility in the options market, particularly for the Jan. 16, 2025 $20 Call option [1] Company Analysis - AvalonBay Communities currently holds a Zacks Rank of 4 (Sell) within the REIT and Equity Trust – Residential industry, which is positioned in the bottom 39% of the Zacks Industry Rank [3] - Over the past 60 days, no analysts have increased their earnings estimates for the current quarter, while three analysts have lowered their estimates, resulting in a decrease of the Zacks Consensus Estimate from $2.82 per share to $2.81 [3] Options Market Insights - The high implied volatility suggests that options traders are anticipating a significant price movement for AvalonBay Communities shares, indicating potential upcoming events that could lead to a major rally or sell-off [2][3] - Options traders often seek to sell premium on options with high implied volatility, aiming to benefit from the decay of the option's value if the underlying stock does not move as much as expected by expiration [4]