AvalonBay Communities Inc.
) reached a new 52-week high, touching $141.95 during the trading
session on May 30. The closing price of $141.84 of this residential
real estate investment trust (REIT) stock reflected a strong
year-to-date return of 21%. The trading volume for the session was
over 1.6 million shares. The stock price gained pace following
strong results in the first quarter.
Despite its strong price appreciation, this Zacks Rank #3 (Hold)
stock has plenty of upside left, given the improving operating
environment, strong fundamentals and its long-term expected growth
rate of 10.9%.
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 FFO per share. The results
were in line with the Zacks Consensus Estimate. Improved results
from its existing portfolio along with leasing from its developed
communities have helped AvalonBay post encouraging quarterly
While harsh winters led to excess utility and snow removal costs at
its properties in the first quarter and consequently lowered its
same store net operating income results, we believe that solid
contribution from development deliveries will drive its results in
the quarters ahead.
In addition, favorable demographics along its markets keep us
optimistic about its growth prospects. As per a study by the
commercial real estate services firm
CBRE Group, Inc.
), the national apartment demand is currently growing at a stronger
pace (over 220,000 units or 1.6% on an annual basis) than what the
market has observed historically.
Therefore, with a solid balance sheet and manageable supply level,
we believe that the company remains well poised to leverage on this
trend. Moreover, with solid fundamentals, we believe that the West
Coast market will outperform this year.
Over the last 30 days, though the Zacks Consensus Estimate for FFO
per share moved down a notch to $6.76 for 2014, for 2015, the Zacks
Consensus Estimate remains unchanged at $7.30 per share. This
reflects a year-over-year increase in FFO per share of 8.49% for
2014 and 7.98% for 2015. The stock now has a Zacks Rank #3 (Hold).
Other Stocks to Consider
In addition to AvalonBay,
Duke Realty Corp.
Host Hotels & Resorts, Inc.
) also scaled 52-week highs on May 30.
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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AVALONBAY CMMTY (AVB): Free Stock Analysis
HOST HOTEL&RSRT (HST): Free Stock Analysis
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DUKE REALTY CP (DRE): Free Stock Analysis
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