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Analyst Blog

AvalonBay Communities Inc. (AVB - Analyst Report) is riding on the growth trajectory. The company, currently a Zacks Rank #2 (Buy) holder, has Class A assets located in some of the premium markets of the country which enable the company to generate steady rental revenues.

In July, AvalonBay reported encouraging second-quarter 2014 results. Aided by growth in rental rates, AvalonBay’s second-quarter funds from operations (FFO) came 3% ahead of the Zacks Consensus Estimate and climbed 10.3% from the prior-year quarter figure. Total revenue increased 6.1% year over year to $413.8 million and surpassed the Zacks Consensus Estimate of $405 million.

Enhanced performance of its newly developed and acquired communities has helped this residential real estate investment trust (REIT) put up solid performance for the quarter.

Going forward, improving economy, job growth, rising consumer confidence and favorable demographics along its markets keep us optimistic about the company’s growth prospects. Particularly, the West Coast is witnessing improved fundamentals and healthier growth.

Nevertheless, though these positives bode well for the company’s future, yet, completion of a number of projects in the Metro DC area and modest job growth keeps the fundamentals of this market challenged.

Moreover, considering the current economic environment, though interest rate may remain low in the very near term, it is expected to rise in the medium term. This may in turn, hurt the rate-sensitive business of the company in the long run.

Echoing similar sentiments, the Zacks Consensus Estimate over the last 30 days climbed 6.6% to $7.22 per share for 2014, while that for 2015 advanced 0.7% to $7.40 per share.

To gain a deeper insight into AvalonBay, you can refer to our updated research report issued on Aug 14, 2014.

Stocks That Warrant a Look

Investors interested in the residential REIT industry may also consider stocks like American Campus Communities, Inc. (ACC - Snapshot Report), Equity LifeStyle Properties, Inc. (ELS - Snapshot Report) and Essex Property Trust Inc. (ESS - Snapshot Report). All these stocks hold a Zacks Rank #2 (Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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