On Aug 14, we reaffirmed our long-term Neutral recommendation
AvalonBay Communities Inc.
). This apartment real estate investment trust (REIT) posted
decent second-quarter 2013 results and raised its outlook for the
year. Yet, the rising construction costs and competitive
pressures remain overhangs.
However, any short-term weakness in the price can be viewed as a
good buying opportunity, given its growth prospects in the
multifamily apartment sector.
Why the Reiteration?
Aided by growth in rental revenue, AvalonBay reported core funds
from operations (FFO) of $1.62 per share in the second quarter of
2013 that was 20.9% ahead of the prior-year quarter figure.
Improved results from its operating portfolio and leasing of new
development communities have helped the company post encouraging
Therefore, prompted by decent multi-family operating
fundamentals, this company, which along with
) closed the Archstone acquisition in February, raised its
revenue, NOI and adjusted FFO growth outlook. This upward
revision of the guidance also boosts investors' confidence.
Yet, the headwind from the Lehman stock holding, competitive
pressures, rising construction costs and the unsettled economic
environment remain overhangs. Also, a significant development
pipeline increases its operational risks. Hence, we have
reaffirmed our Neutral recommendation on the stock.
Over the last 30 days, the Zacks Consensus Estimate for 2013
moved down 1.4% to $6.21 per share while the Zacks Consensus
Estimate for 2014 inched up 1.2% to $6.92 per share. The stock
currently has a Zacks Rank #3 (Hold).
Other Stocks to Consider
Apart from AvalonBay, the other stocks worth considering in the
REIT industry include
Campus Crest Communities, Inc.
Sun Communities Inc.
), both carrying a Zacks Rank #2 (Buy).
Note: FFO, a widely used metric to gauge the performance of
REITs, are obtained after adding depreciation and amortization
and other non-cash expenses to net income.
AVALONBAY CMMTY (AVB): Free Stock Analysis
CAMPUS CREST CM (CCG): Free Stock Analysis
EQUITY RESIDENT (EQR): Free Stock Analysis
SUN CMNTYS INC (SUI): Free Stock Analysis
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