The housing market’s meltdown over the past several years has been a boon for the apartment market. That has turned apartment real estate trusts (REITs) into very attractive investments.
AvalonBay (AVB) has emerged as perhaps the top player among major apartment REITS, besting competitors Equity Residential (EQR) and Apartment Investment Management (AIV).
Avalon Bay stands out for its superior portfolio of properties. Its shares produced an annualized total return of 13.9 percent over the past decade, compared to 11.3 percent for Equity Residential and 1.8 percent for AIMCO.
AvalonBay also was the only one of the three to beat Morningstar’s residential REIT index during that period, by 1.3 percentage points a year.
AvalonBay develops, owns, and manages upscale apartments in choice urban locations. The Boston metropolitan area accounts for about 23 percent of the REIT’s properties, the New York City area accounts for 22 percent, Washington, D.C. 17 percent, and San Francisco 15 percent, according to Morningstar.
With markets like those, AvalonBay has the ability to increase rents by more than other landlords in good economic times and to limit rent decreases when times are bad.
The company expects funds from operations (FFO), a key measure of REIT strength, to surge 18 percent per share this year. It plans to boost its dividend by 9 percent, the first increase since 2008.
Funds from operations jumped 18 percent per share in the fourth quarter from a year earlier.
Standard & Poor’s analyst Royal Shepard has a four-star buy rating on AvalonBay shares. “In our view, AVB's position in urban coastal markets will enable it to raise 2012 rents close to 6 percent on renewed leases,” he writes.
“We also think AVB's large pipeline of development projects holds value and will add incrementally to earnings in 2012.”
The company next reports earnings April 26.
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