AvalonBay Consolidates Assets - Analyst Blog

AvalonBay Communities Inc. (AVB), a real estate investment trust (REIT) primarily focusing on developing multi-family properties, has recently acquired three apartment communities totaling 1366 apartment homes for $189.3 million. The properties were acquired by AvalonBay Value Added Fund II L.P., a private discretionary investment vehicle in which the company has a 31% equity interest. The acquisition is part of the long-term strategy of AvalonBay to own assets in high barrier-to-entry markets of the Northeast, Mid-Atlantic, Midwest and West Coast regions of the U.S., where there is very limited new apartment construction. 

AvalonBay acquired Fox Run Apartments, a 776-unit residential community in Plainsboro, New Jersey, for $86.5 million. Fox Run Apartments is located within close proximity of premier shopping and dining destinations, and provides easy access to public transport and major highways. The apartment homes feature a sparkling outdoor swimming pool besides other amenities such as a state-of-the-art fitness center, resident clubhouse and tennis court.

At the same time, AvalonBay acquired Waterstone Carlsbad Apartments, a 450-unit residential community in Carlsbad, California, for $78.1 million. The property is located in the coastal community of Carlsbad and offers premier quality living facilities to upper-income residents of the city. The property was remodeled in 2007 and currently features two on-site heated swimming pools, four spas and several recreation areas including a dog park.

In addition, AvalonBay acquired Canyonwoods Apartments, a 140-unit residential community in Lake Forest, California, for $24.7 million. Canyonwoods Apartments is located in close proximity to the Irvine Spectrum, a major employment, retail and entertainment center. The property offers spacious one- and two-bedroom apartments in a wooded Lake Forest setting, and includes amenities such as a sparkling swimming pool and spa/sauna, fitness center, lighted tennis courts, and private patio/balcony.

The housing meltdown will continue to help apartment REITs like AvalonBay and we expect this sector to remain comparatively stable in the coming quarters. Furthermore, AvalonBay has Class-A assets located in premium markets, such as Washington DC, New York City, and San Francisco, where the spread between renting and owning is still high despite home price declines.

However, AvalonBay has a significant development pipeline, which increases operational risks in the current credit-constrained market, exposing it to rising construction costs, entitlement delays, and lease-up risk. Presently, the company has a ‘Neutral' recommendation and a Zacks #3 Rank that translates into a short-term ‘Hold' rating and indicates that the stock is expected to perform in line with the overall U.S. equity market for the next 1–3 months. We also have a ‘Neutral' recommendation and a Zacks #2 Rank (short-term ‘Buy') for Apartment Investment & Management Co. (AIV), one of the competitors of AvalonBay.

 
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AVALONBAY CMMTY (AVB): Free Stock Analysis Report
 
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