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    AVB
    Earnings call· Dec 2025(Q4 FY25)

    AVALONBAY COMMUNITIES Q4 FY25 earnings call AVB

    Feb 5, 2026 Source

    Executive summary

    AvalonBay Communities Q4 FY25 — Strategic Capital Allocation and Development Drive Future Growth

    AvalonBay Communities delivered strong operational execution in Q4 FY25, marked by record-low turnover and strategic capital allocation including significant share repurchases and development starts. While the company anticipates modest revenue growth of 1.4% in 2026, driven by a softer demand environment, it is well-positioned for meaningful earnings and value creation in 2027 as development projects stabilize. Management emphasized a disciplined approach to new development and a focus on portfolio optimization.

    Highlights

    5

    • Achieved a turnover rate of 41% in 2025, the lowest in the company's history.

    • Started $1.65 billion of development projects in 2025 with a projected initial stabilized yield of 6.2%.

    • Raised almost $900 million of equity on a forward basis in 2024 at an implied initial cost of 5%.

    • Repurchased almost $490 million of shares in 2025 at an average price of $182 per share, implying a yield north of 6%.

    • Board approved a 1.7% increase in the quarterly dividend to $1.78 per share.

    Concerns

    5

    • Forecasting modest revenue growth of 1.4% for 2026 due to the current job and demand backdrop.

    • Mid-Atlantic region experienced job losses in H2 2025, leading to a projected revenue growth of just under 1% for 2026.

    • Denver market faces a challenging environment in 2026 with modest job growth and another 9,000 new units being delivered.

    • Development earnings contribution in 2026 is lower than typical, with a projected $0.10 increase to core FFO per share.

    • Refinancing activity and transaction activity are expected to decrease core FFO per share by $0.07 and $0.10, respectively, in 2026.

    Guidance & targets

    11
    CategoryTargetConfidence
    Full-year 2026 revenue growth
    1.4%
    high materiality
    High
    Full-year 2026 same-store operating expense growth
    3.8%
    medium materiality
    High
    Full-year 2026 like-term effective rent change
    2%
    high materiality
    High
    2026 development starts
    $800 million
    high materiality
    High
    Quarterly dividend per share
    $1.78
    high materiality
    High
    Core FFO per share impact from same-store NOI
    $0.04 increase
    medium materiality
    High
    Core FFO per share impact from net development earnings
    $0.10 increase
    medium materiality
    High
    Core FFO per share impact from Structured Investment Program (SIP) and 2025 share repurchases
    $0.07 increase
    medium materiality
    High
    Core FFO per share impact from refinancing activity
    $0.07 decrease
    medium materiality
    High
    Core FFO per share impact from transaction activity
    $0.10 decrease
    medium materiality
    High
    Incremental development NOI
    $75 million
    high materiality
    High

    Segment performance

    8
    SegmentRevenueYoYQoQMargin
    New York, New Jersey
    Revenue growth primarily driven by healthy contributions from New York City and Westchester.
    New York City and Westchester revenue growth: mid- to high 3%
    		—~2%——
    Boston
    Demand impacted by job losses in H2 2025. Outlook reflects occupancy and rent relief declines, with improvement expected as demand picks up due to reduced new deliveries.
    Projected year-over-year occupancy decline: ~40 bpsProjected year-over-year rent relief payments decline: ~40 bpsNew apartment deliveries projected decline: ~30% to 4,000 units
    		————
    Mid-Atlantic
    Job losses in H2 2025 were the highest of established regions. Negative lease rate growth offset by occupancy improvement, bad debt reduction, and other rental revenue. Outlook could turn positive in H2 2026 with improved job growth and significantly reduced new deliveries.
    Net effective lease rate growth: negativeOccupancy improvement: ~20 bpsUnderlying bad debt reduction: ~30 bpsOther rental revenue contribution: ~30 bpsNew apartment deliveries projected decline: ~60% to 5,000 units
    		—just under 1%——
    Northern California
    Revenue growth supported by built-in lease rate growth and stable occupancy. Reduced new apartment deliveries expected to support continued healthy rate growth.
    Built-in lease rate growth: 1%Occupancy: relatively stable at ~96%New apartment deliveries projected decline: ~60% to 3,000 units
    		—mid-3%——
    Seattle
    Total employment was flat for the last 6 months of 2025. Modest rate growth, occupancy reduction, and contribution from other rental revenue. Reduced new deliveries expected to support improved performance.
    Net effective rate growth: modestOccupancy reduction: ~20 bpsOther rental revenue contribution: ~40 bpsNew unit deliveries projected decline: ~50% to 5,000 units
    		————
    Southern California
    Revenue growth driven by stable occupancy, lower bad debt, and effective rate growth in specific submarkets. Reduced unit deliveries expected to support performance.
    Occupancy: stableLower bad debt contribution: ~20 bps (primarily L.A.)Incremental effective rate growth: primarily Orange County and San DiegoUnit deliveries projected decline: ~40% to 11,000 units (most meaningful in L.A.)
    		—mid-1%——
    Southeast Florida (Expansion)
    Expected to remain the strongest expansion region.
    		—~1.5%——
    Denver (Expansion)
    Suffered from 0 net job growth in 2025 and 16,000 new apartments delivered. Outlook for 2026 reflects a challenging environment with modest job growth and another 9,000 new units delivered.
    Built-in lease rate growth: -1%Rents projected to continue to decline
    		————

    Operational metrics

    22
    Turnover rate
    41%lowest in company's history
    FY25

    Reflects high levels of retention and strong renewal acceptance.

    Mid-Lease Net Promoter Score
    34near all-time high
    FY25

    One of the metrics used to measure customer engagement, with connections to retention and renewal outcomes.

    Annual incremental NOI from operating initiatives
    $80 million60% achieved
    Target

    Target for annual incremental NOI from operating initiatives, with 60% achieved to date and $7 million expected in 2026.

    Equity capital raised (forward basis)
    $900 million
    2024

    Raised on a forward basis in 2024.

    Shares repurchased
    $490 million
    2025

    Funded with incremental debt and sale of lower growth assets.

    Total capital raised
    $2.4 billion
    2025

    Positioning for investment in existing portfolio and new development in 2026.

    NABE net new jobs forecast
    750,000
    2026

    Assumed job growth environment for 2026, slightly stronger than 2025 but still modest.

    Rent-to-income ratios
    Below 2020 levels
    Current

    In established regions, indicating incomes have grown faster than apartment rents.

    Home ownership cost premium
    >$2,000
    Monthly

    More expensive to own a home in established regions compared to renting, due to home prices, mortgage rates, and other costs.

    New supply as % of stock in established regions
    80 bps
    2026

    Levels not seen since the period coming out of the GFC, expected to be a tailwind.

    Construction in progress (CIP) increase
    $340 million
    2025 to 2026

    Temporarily dampens earnings growth in 2026 because initial funding cost (5%) exceeds capitalized interest rate (3.7%).

    Capitalized interest rate (GAAP)
    3.7%
    Current

    Lower than the 5% initial funding cost, impacting earnings in 2026.

    Average leases per month (Q4 lease-up book)
    ~20
    Q4 FY25

    Across the whole lease-up book, including 3-4 in New Jersey.

    Average leases per month (January lease-up book)
    26
    January 2026

    Across 7-9 deals, showing good traction in a typically slow month.

    Mid-Atlantic job losses
    ~60,000
    Last 6 months

    Primary driver of softness in the Mid-Atlantic market.

    Denver new apartment deliveries
    16,000
    2025

    Combined with 0 net job growth, contributed to a tough year for the Denver market.

    Denver new apartment deliveries
    9,000
    2026

    Expected to continue challenging the Denver market with modest job growth.

    Bad debt
    1.6%
    FY25

    Full year 2025 bad debt.

    Bad debt
    1.63%
    Q4 FY25

    Fourth quarter 2025 bad debt, slightly higher than average.

    Bad debt forecast
    1.4%
    FY26

    Forecast for full year 2026.

    Commercial paper balance
    $400 million to $500 million
    Persistent range

    Expected persistent balance for the commercial paper program, representing attractive floating rate debt.

    Leverage to fund capacity (annual)
    $1.25 billion
    Annual average

    Average capacity for investment without accessing equity markets or levering up, derived from free cash flow, leveraged EBITDA growth, and asset sales before distribution obligations.

    Industry KPIs

    12
    MetricValueDetails
    Occupancy rate—%
    Development starts$800 millionUSD
    Disposition volume$235 millionUSD
    Debt financing raised—
    Same store noi growth—
    Investment volume closed—
    Cap rate initial cash yield—%
    Leasing bookings volume signed—
    Ffo core ffo normalized ffo per share—USD
    Development pipeline under construction$2.7 billionUSD
    Lease renewal spread re leasing recapture2%%
    Third party strategic capital fund jv platform—

    Orderbook & backlog

    5
    Development pipeline under construction (2026 occupancies)3,175 homesFY26

    from 1,812 homes in 2025

    Expected occupancies from projects leasing up during 2026.

    Development pipeline under construction (2027 occupancies)4,100 homesFY27

    from ~3,175 homes in 2026

    Expected occupancies from projects leasing up during 2027.

    Development NOI (2026)$47 millionFY26

    Expected development NOI for 2026 from projects leasing up.

    Development NOI (2027)$75 million incrementalFY27

    Expected incremental development NOI for 2027 from projects leasing up.

    Pending asset sales$235 millionLate 2025

    Analyst-confirmed amount of pending sales previously under agreement.

    Deals & partnerships

    3
    Undiscloseddivestiture

    Timely sale of a portfolio of assets in a challenged submarket in Washington, D.C.

    Undisclosedacquisition

    Acquisition of a tailored portfolio of communities at a very attractive cost basis in Texas.

    Undiscloseddivestiture

    Sale of an asset in San Francisco at a low-5s cap rate. This was a 50+ year old high-rise asset with heavy CapEx needs and subject to rent control.

    Risks & headwinds

    6
    Modest revenue growth environmentFY26

    1.4% forecast for 2026

    Mitigation: Focus on portfolio quality, proactive optimization, and strong operating teams; expectation of improved fundamentals in H2 2026.

    Lingering standing inventory and new supplyH1 2026, FY26 (Denver)

    Lingering standing inventory from H2 2025 impacting H1 2026; Denver facing 9,000 new units in 2026

    Mitigation: Expectation of sequential improvement quarterly as standing inventory is absorbed and new deliveries decline meaningfully in established regions.

    Regional job losses and demand softnessH2 2025 (impact felt in 2026)

    ~60,000 job losses in Mid-Atlantic in H2 2025; Boston demand impacted by job losses

    Mitigation: Reduced new apartment deliveries in affected markets (e.g., Mid-Atlantic down 60%) expected to support recovery if job growth stabilizes.

    Legislative and regulatory impacts on revenue and expensesFY26 and beyond

    Colorado legislation impacting fees and utility recovery (15 bps OpEx drag); California AB 1414 impacting bulk Internet revenue; Massachusetts ballot initiative

    Mitigation: Modeling expected outcomes based on similar programs; engagement with trade associations to advocate for good legislation and oppose onerous initiatives.

    Property tax headwindsFY26

    70 bps from abatement phaseouts; 50 bps from prior tax appeal settlement

    Mitigation: Factored into 2026 operating expense growth forecast.

    Development earnings dampeningFY26

    $0.10 increase to core FFO per share from development, lower than typical; $340 million increase in construction in progress (CIP)

    Mitigation: Decision to lean into accretive development sets stage for outsized earnings growth in 2027 and beyond as projects stabilize at yields >6%.

    Q&A highlights

    6

    What is the expected settlement rate for renewal offers (4%-4.5% range) and what factors drive the projected H1 vs. H2 rent change improvement, particularly regarding supply impact?

    Renewal offers typically settle with 100-125 bps dilution. The full-year 2026 like-term effective rent change is forecast at 2%, with H1 in the low 1% range and H2 improving to mid-2s. This ramp-up is driven by a slight uptick in job growth, 40% less supply, absorption of standing inventory, and softer comps in H2. Confidence in the ramp is based on models reflecting these factors.

    “Our assumption is that the renewals will basically average about the same as 2025 sort of in the mid-3% range. And we're expecting move-ins to improve by roughly 70 to 80 basis points in 2026 as compared to 2025 so that it comes in instead of being modestly negative, it comes in around flat for the year 2026.”

    asked by Eric Wolfe · answered by Sean Breslin

    2 min read6 chapters

    Detailed Narrative

    01

    Portfolio Optimization and Capital Allocation

    AvalonBay strategically raised $2.4 billion of capital in 2025 at an initial cost of 5%, positioning the company for future investments. This included raising $900 million of equity on a forward basis in 2024 at an implied initial cost of 5% and repurchasing $490 million of shares in 2025 at an average price of $182 per share, yielding over 6%. These repurchases were funded by incremental debt and the sale of lower-growth assets, enhancing the long-term growth profile of the portfolio.

    02

    Operating Initiatives and Efficiency

    The company is 60% of the way towards its target of $80 million in annual incremental NOI from operating initiatives, with an additional $7 million of NOI slated for 2026. These initiatives leverage scale, technology, and centralized services to drive growth from the existing portfolio. Despite some headwinds from legislative actions, other rental revenue growth is projected at roughly 3.5% for 2026, which would have been closer to 5% without these impacts.

    03

    Development Strategy and Outlook

    AvalonBay started $1.65 billion of projects in 2025 with a projected initial stabilized yield of 6.2%. For 2026, new development starts are restrained to $800 million across 7 projects, targeting an average development yield of 6.5% to 7%. This disciplined approach, focusing on higher-yielding opportunities and strategic locations, sets the foundation for significant earnings and value creation, with development NOI expected to ramp up meaningfully into 2027.

    04

    Market Fundamentals and Supply Backdrop

    Demand for apartments is supported by rent-to-income ratios now below 2020 levels in established regions, and the continued attractiveness of renting over homeownership, which is over $2,000 per month more expensive in AvalonBay's key markets. The supply outlook is favorable, with new supply in established regions expected at only 80 basis points of stock in 2026, a level not seen since the GFC, providing a tailwind for future growth.

    05

    Regional Performance Nuances

    While New York, New Jersey is projected for ~2% revenue growth, Boston and the Mid-Atlantic face headwinds from job losses in H2 2025, with Mid-Atlantic revenue growth projected at under 1%. Northern California is expected to see mid-3% revenue growth, while Seattle anticipates modest net effective rate growth. Denver remains challenging with 0 net job growth in 2025 and significant new supply, leading to a projected -1% built-in lease rate growth for 2026.

    06

    Legislative and Regulatory Headwinds

    Legislative changes are impacting other rental revenue and operating expenses. Colorado legislation limits the ability to charge certain fees and recover utility components, contributing to a 15 bps drag on OpEx growth. California's AB 1414 provides residents with an opt-out option for bulk Internet programs, potentially impacting revenue. The company is actively monitoring these and other potential legislative initiatives, such as a ballot initiative in Massachusetts.

    AI-generated summary of the company’s earnings call. Not investment advice.