Morningstar | AVB 3Q18 Report
AvalonBay Communities owns and operates high-quality multifamily buildings in urban and suburban coastal markets with demographics that allow the company to maintain high occupancies and drive strong rent growth, specifically, New England, New York/New Jersey, the mid-Atlantic, Southern California, Northern California, and Seattle. These markets exhibit traits that create demand for apartments like job growth, income growth, decreasing homeownership rates, high relative cost of single-family housing, and attractive urban centers that draw younger people. The company regularly recycles capital by selling noncore assets or exiting markets and using the proceeds for its development pipeline or acquisitions with promising growth prospects, a strategy that continues to produce strong returns.We are cautious about AvalonBay's growth prospects, given that new supply is increasing in many of its markets, particularly on the East Coast. The majority of this new supply is in the urban, luxury end of the apartment market, where AvalonBay traditionally operates. We think this elevated volume of near-term deliveries, in addition to the likely development of more-affordable suburban apartments and single-family homes, will continue to pressure market rents and will offset much of the demand growth created by positive demographic trends. Further, the increased competition for apartment assets combined with increasing construction costs is reducing the company’s development pipeline, one of its core competencies. While management's history demonstrates prudent capital stewardship and the company's healthy balance sheet should help insulate it from negative surprises, we believe the company's internal and external growth prospects are both slowing to their historical norms.AvalonBay Communities is a real estate investment trust. The company develops, redevelops, acquires, owns and operates multifamily communities primarily in New England, the New York/New Jersey metro area, the Mid-Atlantic, the Pacific Northwest, and Northern and Southern California. The company owns or holds a direct or indirect ownership interest in: operating apartment communities containing apartment homes in various states and the District of Columbia; communities under development; and rights to develop an additional communities.
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