AvanlonBay on Acquisition Spree – Analyst Blog

AvalonBay Communities Inc. (AVB), a real estate investment trust (REIT) primarily focusing on developing multi-family apartment communities, has recently acquired two apartment homes in Maryland for $146 million. The acquisition is part of the long-term strategy 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.

 

AvalonBay acquired Grove Park apartment, a 684-unit garden-style residential community in Gaithersburg, Maryland, for $101 million. Grove Park apartment is located within close proximity of premier shopping and dining destinations, and provides easy access to public transport. The apartment homes feature eat-in kitchens, washer/dryer, oversized closets and private patio/balcony, besides other amenities such as a swimming pool, fitness center, resident clubhouse and children’s play area.

 

AvalonBay has also acquired Briarwood apartment, a 348-unit residential community in Owings Mills, Maryland, for $45 million. The property is located in the submarket area of metropolitan Baltimore and offers premier quality suburban living facilities convenient to both employment and transportation. The property also includes several townhome-style apartment homes and detached garages.

 

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 the company.

 

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 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.