Balanced View on AvalonBay - Analyst Blog

On May 14, 2014, we issued an updated research report on residential real estate investment trust (REIT), AvalonBay Communities Inc. AVB.

On Apr 23, helped by growth in rental rates, AvalonBay reported first-quarter 2014 core funds from operations (FFO) of $1.63 per share that came well ahead of the prior-year quarter figure and was in line with the Zacks Consensus Estimate. Improved results from its existing portfolio along with leasing from its developed communities have helped this residential REIT post encouraging quarterly results.

Though excess utility and snow removal costs at its properties in the first quarter due to tough winters lowered its same store net operating income results, we believe that going forward, the company's FFO per share is expected to experience solid contribution from development deliveries. Moreover, favorable demographics along its markets keep us optimistic about its growth prospects.

However, with a notable number of projects in the market nearing completion, we expect the supply to increase in the near term. This may temper the growth momentum of rents.  

Echoing similar sentiments we note that over the last 30 days, the Zacks Consensus Estimate for FFO per share moved down 0.15% to $6.76 for 2014. However, for 2015, Zacks Consensus Estimate climbed 0.3% to $7.29 per share. The stock now has a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Investors interested in the residential REIT industry may consider stocks like Education Realty Trust, Inc. EDR, Equity LifeStyle Properties, Inc. ELS and Spirit Realty Capital, Inc. SRC. All these stocks have a Zacks Rank #2 (Buy).
 

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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