Analyst Note| Kevin Brown |
No-moat AvalonBay Communities second-quarter results saw quarter over quarter improvement for the first time in over a year but still came in below our expectations. Still, we don't see anything from the quarter that would materially affect our $192 fair value estimate. Same-store occupancy improved 70 basis points sequentially to 96.3% in the second quarter. Rental rates also saw a minor sequential improvement, up 0.2% quarter over quarter but were still down 6.3% year over year. As a result, same-store revenue fell 4.7% year over year, slightly below our estimate of a 4.3% decline. However, same-store operating expenses were up 6.0%, ahead of our estimate of 4.6% expense growth, as costs for repairs, insurance, and marketing all saw large increases in the quarter. While these added costs led to same-store net operating income falling 9.2% in the quarter, below our estimate of an 8.1% drop, we think many of these added costs are catch-up for depressed 2020 spending and should normalize in future quarters. Still, the lower portfolio results led to AvalonBay reporting core funds from operations of $1.98 in the second quarter, which is a 3-cent improvement over the first quarter but is 25 cents below the second quarter of 2020.