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AvalonBay Struggled to Increase Occupancy Rates in 3Q15

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Average rental rates

AvalonBay’s (AVB) established communities’ average rental rates were up by 5.8% to $2,400 in 3Q15 over the corresponding period last fiscal year. Average rental rate is defined as total rental revenues divided by the weighted average occupied apartment units for the period.

All of the company’s key six regions witnessed growth in established communities’ average rental rates in 3Q15 over 3Q14. Northern California recorded a higher average rental rate growth at 11% to $2,662 over 3Q14. In the Northern California region, San Francisco witnessed growth at 10.3% to $3,097. The Pacific Northwest region witnessed growth of 8% to $2,005. On the other hand, Metro New York/New Jersey experienced a lower average rental rate growth at 4.6% to $2,968 in 3Q15 over 3Q14. Metro New York City has the highest rental rates in the company’s portfolio at $3,868 in 3Q15.

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Occupancy rate fell

AvalonBay’s established communities’ occupancy rate fell by 0.4% year-over-year to 95.3% in 3Q15. This is the lowest occupancy level recorded by the company in the last 14 quarters. The lower occupancy level is a concern for the company, as it affects revenue.

Except for the Mid-Atlantic region, all of the company’s other markets witnessed a decline in established communities’ occupancy rate in 3Q15 over 3Q14. Northern California experienced the highest decline of 0.9% in the occupancy level to 94.9%. It was followed by the Pacific Northwest with a 0.8% decline to a level of 94%. Surprisingly, AvalonBay also posted a fall in the occupancy level in the booming Metro NY/NJ market. The occupancy level there fell by 0.5% to 95.5%.

AvalonBay makes up 5.8% of the iShares Cohen & Steers REIT ETF’s (ICF) portfolio. Peers like Equity Residential (EQR), Essex Property Trust (ESS), and UDR (UDR) have weights of 7%, 3.6%, and 2.2%, respectively, in the ETF’s portfolio.

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