AvalonBay Communities Inc. (AVB), an Arlington, Va. – based real estate investment trust (:REIT) recently disclosed the divestiture of 2 communities – Avalon Decoverly and Crystal House. This comes as part of the company’s portfolio restructuring activity in the Washington D.C. area and the deals helped fetch a total of $332 million.
Specifically, AvalonBay sold off Avalon Decoverly – a 564 apartment home community situated in Rockville, Md. for $135 million. The other property – Crystal House – an 828 apartment home community property in Arlington, Va. was disposed for $197 million. Crystal House was acquired by Mack-Cali Realty Corp. (CLI), an Edison-based REIT through a joint venture (:JV) with a fund advised by UBS Global Asset Management of UBS AG (UBS).
AvalonBay disposed the 2 communities at a weighted average initial year market capitalization rate of 5.2%. The amount gathered would be used for meeting general corporate needs.
AvalonBay purchased Crystal House as part of its Archstone acquisition deal. As a matter of fact, in Nov 2012, AvalonBay alongwith Equity Residential (EQR), entered into an agreement with Lehman Brothers Holdings Inc. to acquire the entire ownership stake of Archstone Enterprise LP.
The deal envisaged AvalonBay acquiring 40% of Archstone’s assets and liabilities, while the rest would be taken by Equity Residential. The transaction closed on Feb 27, 2013 and Archstone Enterprise LP is now known as Jupiter Enterprise LP.
We believe that the asset dispositions are a strategic fit for AvalonBay. The move would help enhance its portfolio as well as boost its balance sheet with adequate liquidity. Also, management expects to continue its expansion spree with estimated acquisitions worth $300 million of in-service communities in the current year apart from the purchase of the Archstone portfolio. We believe that this portfolio repositioning activity will improve the internal growth metrics and enable the company to emerge stronger once the real estate markets fully recover.
However, short-term revenue headwinds arising from acquisitions and a huge development pipeline, which will heighten operational risks, remain the matters of concern.
AvalonBay currently has a Zacks Rank # 3 (Hold).
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