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AvalonBay Communities, Inc. (AVB) recently announced the pricing of a public offering of 5.1 million shares of its common stock at $128.25. The public offering is expected to generate net proceeds of $630.7 million. In a bid to cover over-allotments, the company will provide a 30-day option to the underwriters for purchasing an additional 765,000 million shares.

AvalonBay intends to utilize the proceeds generated from the transaction to fund investment activities including development, redevelopment and acquisitions and for other general corporate purposes.

This public offering will enable the company to attain financial flexibility and  pursue investment opportunities and acquisitions, which go a long way in enhancing top-line growth. As of June 30, 2011, the company’s cash position stood at $360.2 million.

During the second quarter of 2011, AvalonBay reported funds from operations (FFO) of $99.9 million or $1.13 per share compared with $87.8 million or $1.04 per share in the year-earlier quarter. Fund from operations, 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.

Headquartered in Alexandria, Virginia, AvalonBay is a real estate investment trust (REIT) withClass A assets located in some of the premium markets in the country, such as Washington DC, New York City, and San Francisco, where the spread between renting and owning is high. This enables the company to continually increase rents to drive further growth

Furthermore, Avalonbay’s assets are primarily located in infillsupply-constrained areas, where there are very limited new apartment construction activities. In addition, the company mostly focuses on developing properties for higher-income clients in high barrier-to-entry regions of the U.S. This safeguards the company from any short-term volatility in the market and provides a strong upside potential.

We currently have a ‘Neutral’ recommendation on Avalonbay over the long term. The company holds a Zacks #3 Rank, which translates into a short-term Hold rating. One of its competitors, Apartment Investment & Management Co. (AIV - Analyst Report)) also retains a Zacks #3 Rank.

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