雅虎香港財經 Should You Retain AvalonBay (AVB) Stock in Your Portfolio Now?
AvalonBay Communities AVB is well-poised to benefit from the healthy renter demand for its residential properties in the high barrier-to-entry regions of the United States, as favorable demographic trends and rising home ownership costs are likely to keep driving demand for rental units. The company’s efforts to leverage technology and scale to drive margin expansion and operational efficiency seem encouraging.
However, the elevated supply of rental units in certain markets is likely to fuel competition and curb pricing power, thereby impeding the rent growth momentum to some extent. A high interest rate adds to its woes.
What’s Aiding AVB?
AvalonBay has high-quality assets located in some of the premium markets of the country, which enable the company to generate steady rental revenues. It focuses on adding properties situated in the leading metropolitan areas where the market is characterized by growing employment in the high-wage sectors of the economy, higher home ownership costs, and a diverse and vibrant quality of life. This offers AvalonBay an edge for generating superior long-term risk-adjusted returns on apartment community investments over the other markets that lack such characteristics.
Its portfolio is well-diversified, with its same-store portfolio comprising a decent number of both suburban and urban assets. Moreover, limited single-family home inventory is making the transition from renter to homeowner difficult in its markets and renting apartment units is a viable option. Hence, with these factors in place, AvalonBay remains well-poised for growth.
In 2024, management expects same-store residential revenues to increase 3.1% year over year. We expect year-over-year growth of 3.3% in the company’s same-store residential rental revenues in 2024.
To enhance its overall portfolio quality, AvalonBay has carried out several strategic acquisitions over the years. In 2023, the company completed acquisitions worth $277.2 million. Moreover, given the favorable residential real estate market fundamentals in the newly expanded markets of Raleigh-Durham and Charlotte, NC; Southeast Florida; Dallas and Austin, TX, and Denver, CO, AVB is tracking opportunities to increase its asset base here. A young, well-educated workforce, in-migration trends and a high concentration of science, technology, engineering or math jobs are the demand drivers for these markets. The company optimizes its portfolio by increasing allocation to suburban submarkets and expansion regions and by making accretive investments in the existing portfolio.
AvalonBay also has an encouraging development pipeline. Over the next few years, the developments underway are expected to deliver meaningful incremental net operating income (NOI) upon completion and stabilization and are expected to fuel FFO and NAV growth.
AvalonBay is leveraging technology, scale and organizational capabilities to drive margin expansion in its portfolio. The company is focusing on self-serve digital experiences to provide a seamless, personalized customer experience. Such efforts are likely to bring about operational efficiency and reduce costs, aiding NOI growth.
AvalonBay has a healthy balance sheet with ample liquidity, placing it well to capitalize on long-term growth opportunities. The company has a well-laddered debt maturity schedule with a weighted average year-to-maturity of 7.4 years. In addition, in the first quarter of 2024, its annualized net debt-to-core EBITDAre was 4.3 times, and the unencumbered NOI was 95%, providing scope for tapping the additional secured debt capital if required. Moreover, balance sheet flexibility is preserved for future opportunities, with more than 90% match-funded on current development underway at the end of the first quarter of 2024.
Over the past three months, shares of this Zacks Rank #3 (Hold) company have gained 6.9% compared with the industry's upside of 2%.
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What’s Hurting AVB?
The struggle to lure renters will persist as supply volume is expected to remain elevated in some markets where the company operates. Also, AVB faces competition from other housing alternatives, such as rental apartments, condominiums and single-family homes. Such a competitive landscape limits the company’s ability to increase rent, thereby restricting its growth momentum to some extent. Further, an expected moderation in rent growth in 2024 could impede revenue growth to a certain extent in some regions and markets.
The continuation of the flexible working environment is resulting in a shift of renter demand away from higher cost and urban/infill markets. This is likely to impact the demand for some of AvalonBay’s properties in the urban markets and put pressure on occupancy levels.
A high interest rate environment is a concern for AvalonBay. The company may find it difficult to purchase or develop real estate with borrowed funds as the costs are likely to be on the higher side. AvalonBay has a substantial debt burden, and its total debt was approximately $8.04 billion as of Mar 31, 2024. For 2024, we project a year-over-year rise of 8.4% in the company’s interest expenses.
Stocks to Consider
Some better-ranked stocks from the broader REIT sector are Rexford Industrial Realty REXR and Lamar Advertising LAMR, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for REXR’s 2024 funds from operation (FFO) per share has moved marginally northward over the past two months to $2.34.
The Zacks Consensus Estimate for LAMR’s current-year FFO per share has been raised 3.7% over the past two months to $8.03.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.
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AvalonBay Communities, Inc. (AVB) : Free Stock Analysis Report
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