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Neutral on AvalonBay

Zacks Equity Research

On Aug 14, we reaffirmed our long-term Neutral recommendation on AvalonBay Communities Inc. (AVB). This apartment real estate investment trust (:REIT) posted decent second-quarter 2013 results and raised its outlook for the year. Yet, the rising construction costs and competitive pressures remain overhangs.

However, any short-term weakness in the price can be viewed as a good buying opportunity, given its growth prospects in the multifamily apartment sector.

Why the Reiteration?

Aided by growth in rental revenue, AvalonBay reported core funds from operations (:FFO) of $1.62 per share in the second quarter of 2013 that was 20.9% ahead of the prior-year quarter figure. Improved results from its operating portfolio and leasing of new development communities have helped the company post encouraging quarterly results.

Therefore, prompted by decent multi-family operating fundamentals, this company, which along with Equity Residential (EQR) closed the Archstone acquisition in February, raised its revenue, NOI and adjusted FFO growth outlook. This upward revision of the guidance also boosts investors’ confidence.

Yet, the headwind from the Lehman stock holding, competitive pressures, rising construction costs and the unsettled economic environment remain overhangs. Also, a significant development pipeline increases its operational risks. Hence, we have reaffirmed our Neutral recommendation on the stock.

Over the last 30 days, the Zacks Consensus Estimate for 2013 moved down 1.4% to $6.21 per share while the Zacks Consensus Estimate for 2014 inched up 1.2% to $6.92 per share. The stock currently has a Zacks Rank #3 (Hold).

Other Stocks to Consider

Apart from AvalonBay, the other stocks worth considering in the REIT industry include Campus Crest Communities, Inc. (CCG) and Sun Communities Inc. (SUI), both carrying a Zacks Rank #2 (Buy).
Note: FFO, a widely used metric to gauge the performance of REITs, are obtained after adding depreciation and amortization and other non-cash expenses to net income.

Read the Full Research Report on AVB

Read the Full Research Report on EQR

Read the Full Research Report on CCG

Read the Full Research Report on SUI

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