AvalonBay Communities Inc. (AVB), a real estate investment trust (REIT) primarily focusing on developing multi-family apartment communities, recently acquired Creekside Meadows, a 628-unit apartment community in Tustin, California, for $98.5 million. The acquisition is part of the long-term plan of the company 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.
Creekside Meadows is located in close proximity to the I-5 Santa Ana Freeway that provides easy access to employment centers throughout Orange County and Los Angeles County. The property also features superior amenities such as washer-dryers in individual apartment homes, garage parking facilities, and a state-of-the-art fitness center.
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. This provides an upside potential for the company. Consequently, we maintain our long-term Outperform rating on AvalonBay.
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, AvalonBay has a Zacks #3 Rank that translates into a short-term ‘Hold’ recommendation and indicates that the stock is expected to perform in line with the overall U.S. equity market for the next 1–3 months.
AVALONBAY CMMTY (AVB): Free Stock Analysis Report
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