AvalonBay Communities

Written By Editor

Executive Summary:

Note: This post is a ‘company review’ and not a ‘stock recommendation’. Given the economic environment and its impact on residential REITs, it is prudent to wait and see the prices before making an investment in residential REITs.

The Company:

AvalonBay Communities, Inc. (“AVB”) is a residential REIT incorporated in 1995 with 261 stable properties and 18 properties under development. AVB is internally managed and focuses on acquiring, owning, developing, and redeveloping residential properties in 12 states and DC. AVB has been quite active in developing properties, which is expected to have a positive impact on future income because most of the current projects were built at pre-inflation costs but will enjoy higher current rents as they are leased up.

Strategy:

  • Investing in properties located in leading metropolitan areas that are in high demand by high-paid professionals and where the cost of home ownership is high.

  • Accessing cost effective capital.

  • Using more advanced technology that is not available to the smaller players to operate properties.

  • Competency in development.

  • Buy or sell properties at opportunistic price levels.

Buy Case for AVB:

  • Ownership of high-quality and well-positioned properties that will maintain a high occupancy even during economic downturns.

  • The scale of the operations and presence in multiple markets; therefore, less concentration risk.

Risk Factors:

  • Higher interest rates (and the yield on Baa bonds which is in direct competition with real estate). The Fed might keep the interest rates high for a longer period of time which will result in less demand for real estate.

Valuation:
Base Case Scenario - PDF
Base Case Scenario - Excel

Editor
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