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AvalonBay (AVB) Sets Foot in Denver With Property Buyout

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Residential REIT AvalonBay Communities, Inc. (AVB - Free Report) recently forayed into the Denver metropolitan area with the acquisition of a 252-unit apartment home community — The Lodge Denver West — which was completed in 2016. The company acquired this property in Lakewood, CO, for around $76.8 million.

Per AvalonBay’s management, “Denver shares many of the best characteristics” which are possessed by the established core markets of the company. In addition, the region has grabbed the attention of well educated workers in knowledge-based industries. This makes the acquisition a strategic fit for AvalonBay which intends to fortify its presence in this region on the back of buyouts and new development activity.

Notably, the Denver metro area has been experiencing solid rent growth, thus AvalonBay’s decision to enter this market area will likely prove beneficial. Per The Denver Post news, that cited the Denver Metro Apartment Vacancy and Rent report from the University of Denver’s Daniels College of Business and Colorado Economic and Management Associates, average monthly rent for the second quarter increased $36.98 to $1,419.74, leading to a new rental high.

More importantly, while 2,152 new units were added to the market in the quarter, 4,348 apartments were filled. Also, vacancy rate edged down to 5% from 5.7% in the second quarter, reflecting solid demand for rental units amid low unemployment rate.

Overall for AvalonBay, amid favorable demographics and decent demand in its markets, the company is well poised to grow, backed by its solid portfolio of high quality assets in premium locations. The company also has a healthy balance sheet. However, there is presence of elevated supply in a number of its markets. Hence, growth in its stabilized portfolio is likely to remain restricted in the upcoming period. Further, delay in construction activities in the development portfolio is expected to affect the company’s lease-up net operating in the near term.

AvalonBay currently has a Zacks Rank #3 (Hold). Shares of the company have gained 5.3% year to date, underperforming the industry’s rally of 7.3%.

Stocks to Consider

Better-ranked stocks in the real estate space include Equity LifeStyle Properties, Inc. (ELS - Free Report) , InfraREIT Inc. (HIFR - Free Report) and Communications Sales & Leasing, Inc. (UNIT - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

While InfraREIT and Communications Sales & Leasing have expected long-term growth rates of 8% and 7.5%, respectively, the expected long-term growth rate for Equity LifeStyle Properties is currently pegged at around 5.1%

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. 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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