AvalonBay Communities(AVB) - 2025 Q3 - Earnings Call Transcript

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]