With homeownership rates declining and rental rates rising, the apartment REIT industry should experience a nice tailwind over the next several years. One such company benefitting from this trend is AvalonBay Communities, Inc. (AVB).
AvalonBay develops and manages apartment communities in high barrier to entry markets throughout the U.S. Average rental rates rose in 2010, and management expects this trend to continue in 2011.
The company also pays a dividend that yields a solid 3.0%. It is a Zacks #2 Rank (Buy) stock.
Outlook
Management is optimistic that 2011 will be a year of strong growth for the company. It expects rental revenue growth in all regions and Funds from Operation (FFO) of $4.50 to $4.75 per share. Funds from operations is a figure used by REITs that takes net income and adds back non-cash items like depreciation expenese, which can be quite large.
The Zacks Consensus Estimate is within guidance at $4.63, representing 16% growth over 2010.
Analysts expect continued growth in 2012 as well. The consensus estimate is $5.23, or 13% higher than 2011.
Analysts have been consistently raising their estimates over the last several months as the outlook for the apartment industry continues to improve:
AVB is a Zacks #2 Rank (Buy) stock.
Fourth Quarter Results
AvalonBay reported fourth quarter results on February 2. FFO per share came in at $1.01, in-line with the Zacks Consensus Estimate.
Total revenue increased 5.1% over the same quarter in 2009 as average rental rates improved 2.9%. Meanwhile, net operating income, which is total property revenue minus direct property operating expenses, rose 2.9%.
Fundamentals
AvalonBay pays a dividend that yields 3.0%. While other REITs were slashing or suspending their dividends during the financial crisis, AVB held theirs steady. It hasn’t raised it since early 2008, however.
AvalonBay is headquartered in Arlington, Virginia and has a market cap of $10.1 billion.
Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.
AVALONBAY CMMTY (AVB): Free Stock Analysis Report
Zacks Investment Research
