On May 17, 2013, we reiterated our long-term recommendation on
AvalonBay Communities Inc.
) at Neutral. This reflects AvalonBay's first-quarter earnings,
which were marginally ahead of the Zacks Consensus Estimate.
AVALONBAY CMMTY (AVB): Free Stock Analysis
EQUITY RESIDENT (EQR): Free Stock Analysis
HOST HOTEL&RSRT (HST): Free Stock Analysis
VENTAS INC (VTR): Free Stock Analysis Report
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AvalonBay's first-quarter 2013 core funds from operations (FFO)
reached $1.36 per share, a cent above the Zacks Consensus
Estimate. Results included the positive impact from community
sales and related gains in 2013, a rise in net operating income
(NOI) from the Archstone Acquisition, as well as existing and
developed communities. However, acquisition costs and increased
depreciation associated with the Archstone acquisition acted as
Following the first-quarter results, the Zacks Consensus Estimate
for 2013 moved up 2.6% to $6.32 per share over the last 30 days.
Also, the Zacks Consensus Estimate for 2014 inched up 1.0% to
$6.83 per share in the same time frame. However, we note that
this Zacks Rank #3 (Hold) stock has missed the Zacks Consensus
Estimate in 2 of the last 4 quarters.
AvalonBay mostly focuses on acquiring and developing premium
properties in the high barrier-to-entry regions of the U.S.,
which gives it a competitive edge. Consistent with this
strategy, the company inked a deal with
) to acquire several developed properties and land parcels of
Archstone. This acquisition closed in the first quarter of 2013.
Particularly, AvalonBay acquired 40% of Archstone's assets and
liabilities and the rest was acquired by Equity Residential.
The assets acquired are located primarily in S.C. and the
mid-Atlantic region. The deal can be regarded as a major step
toward strengthening its presence in the upscale regions.
Moreover, its decent operating platform and prospects for growth
in the multifamily sector keep us optimistic.
Nevertheless, the headwind from the Lehman stock holding and the
unsettled economic environment are matters of concern. Also, a
significant development pipeline increases its operational risks
and we believe that the integration of the Archstone deal will
take time to materialize. Hence, we have reaffirmed our Neutral
recommendation on the stock.
Other REITs to Consider
While we prefer AvalonBay, other REITS that are worth a look
Host Hotels & Resorts Inc.
), both carrying a Zacks Rank #2 (Buy).
Funds from operations, a widely accepted and reported measure
of REITs performance, are derived by adding depreciation,
amortization and other non-cash expenses to net income.