AvalonBay Earnings: High Revenue and Expense Growth In Line With Expectations

First quarter results for no-moat AvalonBay Communities were relatively in line with our expectations, leading us to reaffirm our $241 fair value estimate. Same-store occupancy improved 30 basis points sequentially to 96.1%, better than our assumption of flat occupancy growth. Average rental rates were up 9.6% year over year, in line with our estimate of 9.9% growth. As a result, same-store revenue increased 9.5% in the first quarter. However, same-store operating expenses were up 7.1%, the highest single quarter in at least 15 years, as the company saw office operation costs increase 23.3%, utility costs increase 22.9%, and insurance costs rise 11.3%. Same-store net operating income grew 10.7% in the quarter, slightly better than our estimate of 10.0% growth. Core funds from operations came in at $2.57 per share, which was 13.7% above the $2.26 figure reported in the first quarter of 2022 but 2 cents below our estimate due higher to general and administrative costs.