AvalonBay Communities NYSE: AVB reported first-quarter 2026 results that exceeded management’s expectations, citing lower operating expenses, higher development net operating income (NOI), and the impact of share repurchases completed during the period.
“Our first quarter results exceeded our expectations,” President and CEO Ben Schall said, adding that the company’s portfolio is “well-positioned heading into peak leasing season with very low turnover, solid occupancy, and rents tracking as expected through the first four months of the year.”
Q1 performance and portfolio metrics
Schall said same-store residential revenue increased 1.6% year-over-year, while same-store occupancy rose 10 basis points to 96.1%. He also detailed the company’s first-quarter outperformance versus its initial Core FFO per share outlook, attributing it to multiple items.
Schall said AvalonBay’s $0.02 NOI outperformance versus its initial outlook was “20%… revenue driven and 80%… attributable to lower operating expenses,” noting that some operating costs budgeted for the first quarter are now expected to occur later in the year. He also cited $0.01 of favorable development NOI from leased-up communities and $0.01 tied to share repurchases during the quarter.
Chief Operating Officer Sean Breslin said asking rent growth has tracked in line with the company’s expectations for 2026. Since Jan. 1, average asking rent in the same-store portfolio has increased “in the high 4% range,” which he said is ahead of what the company realized in 2025.
Breslin added that occupancy has remained above 96% and has trended modestly ahead of budget, while turnover has been “well below historical norms,” declining 50 basis points versus the first quarter of last year. He pointed to “a historical low 8% of residents moving out to purchase a new home” and declining new supply in established regions as factors supporting turnover and availability dynamics.
Leasing outlook: renewals, move-ins, and regional trends
In response to questions about guidance, Breslin reiterated AvalonBay’s full-year 2026 assumptions for rent change. He said the company expects rent change to average 2% for calendar 2026, comprised of 1.25% in the first half and 2.5% in the second half.
He further broke down the outlook between move-ins and renewals, saying the company is assuming move-ins average about 0% for the year and renewals average around 3.5%, blending to the 2% total. Breslin said first-quarter results were “slightly better than we anticipated,” and that asking rent growth is “actually slightly ahead just a little bit.”
Breslin also said renewal offers for May and June were delivered at average increases of 5% to 5.5%, which he described as about 100 basis points higher than offers for February and March.
On regional performance, Breslin said the strongest markets in the first quarter were the New York Metro area and Northern California, both of which delivered revenue growth slightly ahead of budget. Within New York Metro, he cited New York City and Northern New Jersey as the strongest, while in Northern California he said San Francisco led performance, followed by San Jose and the East Bay, with strengthening in San Francisco and San Jose beginning to “spill over” into the East Bay during the quarter.
He said the Mid-Atlantic modestly outperformed the revenue budget, supported by slightly higher occupancy and higher other rental revenue. Breslin characterized the region as more stable than mid-to-late 2025, though he said it has not “turned the corner just yet.”
Boston, Los Angeles, and Seattle modestly underperformed revenue expectations in the first quarter, according to Breslin, while other regions were collectively on plan.
Asked about concessions, Breslin emphasized the regional nature of the trend. He said concessions are up year-over-year in Boston, Seattle, and Los Angeles, while they are “down meaningfully” in Northern California and the New York Metro area. Overall, he said net effective rate performance is tracking modestly ahead of expectations.
Development: starts, lease-ups, and the NOI ramp
Schall said AvalonBay started nearly $190 million of new development in the first quarter, including two suburban New Jersey starts. He said the company remains on track for $800 million of planned 2026 development starts with projected initial stabilized yields of 6.5% to 7%.
Schall also highlighted the company’s development pipeline, saying AvalonBay had $3.5 billion of development underway at quarter-end with a projected initial stabilized yield of 6.3%. He said the investments were “match funded with capital raised over the past three years at a weighted average initial cost of 4.9%,” which he described as within the company’s targeted spread relative to cost of capital and market cap rates.
Schall said the company expects development NOI to total $47 million in 2026 and increase to $120 million in 2027.
Breslin said leasing momentum at communities in lease-up was strong during the seasonally slower first quarter. The company generated leasing velocity of 32 leases per month in the quarter, compared with historical velocity of 23 per month, at an average effective rent “slightly above” original pro forma. He added that residents selected an average lease term exceeding 15 months, and said concessions were “around 9% or so,” which he characterized as not meaningfully different from typical activity.
Chief Investment Officer Matt Birenbaum said strong lease-up performance reflects both product differentiation and submarket dynamics where new supply has been limited. He pointed to AvalonBay Wayne in New Jersey as an example, calling it “the first new product Wayne has seen in probably 35 years.”
On the company’s capacity to expand development, Birenbaum said AvalonBay’s development rights pipeline was about $4.2 billion at the end of the first quarter. He added that the firm can also scale activity through its Developer Funding Program, where third-party builders bring projects that are “ready and just looking for capital,” though he noted much of that opportunity set does not meet underwriting requirements.
Capital allocation: dispositions, repurchases, and guidance stance
AvalonBay completed $340 million of dispositions and repurchased $200 million of shares during the quarter, Schall said, with repurchases executed at an implied cap rate in the low-6% range. He added that the company’s asset sales also reflect a strategy to sell older high-rise assets and improve the portfolio’s go-forward cash flow growth profile after capital expenditures.
Chief Financial Officer Kevin O’Shea said the company views both buybacks and development as attractive uses of capital, rather than a binary choice. O’Shea said the company’s 2026 capital plan contemplated being a net seller of $100 million, including roughly $500 million of dispositions and $400 million of acquisitions. Year-to-date activity has shifted that mix, he said, with dispositions and repurchases effectively replacing a portion of planned acquisition activity.
O’Shea said AvalonBay is marketing additional communities for sale and may consider additional repurchases if the stock remains attractively priced, potentially in lieu of remaining planned acquisitions, and “on a leverage-neutral basis.” He said the level of activity will depend on the timing and size of sales, share valuation, and tax considerations related to disposition capacity.
Management also addressed why it maintained full-year guidance despite the first-quarter beat. O’Shea said affirming guidance was “the disciplined and appropriate decision today,” pointing to the early point in the year, peak leasing season still ahead, and the role of expense timing in the quarter’s outperformance. He said the company would revisit guidance on the second-quarter call when it has “a much better read on the peak leasing season and the balance of the year.”
In a discussion of apartment demand drivers, Schall said the company considers both jobs and wage growth important, focusing on “total income growth” over time. He added that the company’s outlook was not based on expecting an economic inflection, instead emphasizing lower levels of supply and easier second-half comparisons as key factors shaping expectations for the remainder of 2026.
On a specific San Francisco disposition, Birenbaum described the sale of Avalon Sunset Towers as “a very atypical transaction,” citing regulatory upgrade requirements such as seismic and sprinkler retrofits. He said the buyer’s forward cap rate was “probably in the low 5% range,” while suggesting other San Francisco assets with meaningful loss-to-lease could value at “low-to-mid 4% cap rate today,” depending on the property.
About AvalonBay Communities NYSE: AVB
AvalonBay Communities, Inc NYSE: AVB is a publicly traded real estate investment trust (REIT) that owns, develops, redevelops and manages multifamily residential properties. The company focuses on professionally managed apartment communities, offering a range of rental housing options and related resident services. As a REIT, AvalonBay's core activities center on the acquisition and development of apartment assets and the ongoing operations and leasing of those communities.
AvalonBay's operating activities include ground-up development, strategic redevelopment of existing properties, property and asset management, and on-site leasing and resident services.
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