Here's Why it Is Wise to Retain AvalonBay Stock in Your Portfolio Now

AvalonBay Communities AVB is well-poised to gain from healthy renter demand for its residential properties in the high barrier-to-entry regions of the United States. The company’s efforts to leverage technology to drive margin expansion seem encouraging. Strategic buyouts and development projects, backed by a healthy balance sheet position, augur well for long-term growth. However, elevated rental unit supply in select markets and high-interest expenses raise concerns.Last month, AvalonBay reported a first-quarter 2025 core funds from operations (FFO) per share of $2.83, beating the Zacks Consensus Estimate of $2.80. The figure also climbed 4.8% from the prior-year quarter’s tally. The quarterly performance reflected better-than-expected operating results. Total revenues in the quarter came in at $745.9 million, increasing 4.6% on a year-over-year basis. AvalonBay has also reaffirmed its full-year 2025 outlook.What Is Aiding AvalonBay Communities?AvalonBay owns high-quality assets in top U.S. markets, focusing on metro areas with strong job growth, high homeownership costs and vibrant lifestyles. This positions it to earn superior long-term risk-adjusted returns. Its well-diversified portfolio includes both urban and suburban communities. For 2025, management forecasts 2%-4% year-over-year growth in same-store residential revenues.To enhance its overall portfolio quality, AvalonBay has carried out several strategic acquisitions over the years. The company is also disposing of non-core assets for capital recycling. Moreover, AVB's growth over the intermediate term is likely to be further supported by its increased development deliveries. In the next few years, the developments underway upon completion and stabilization are expected to fuel FFO and net asset value growth. AvalonBay has a healthy balance sheet with ample liquidity, positioning it well to capitalize on long-term growth opportunities. As of March 31, 2025, the company had $53.3 million in unrestricted cash and cash equivalents. As of the same date, AvalonBay did not have any borrowings outstanding under its $2.25 billion unsecured credit facility. AVB has a well-laddered debt maturity schedule with a weighted average year-to-maturity of 6.8 years. In the first quarter of 2025, its annualized net debt-to-core EBITDAre was 4.3 times, and unencumbered NOI was 95%, providing scope for tapping additional secured debt capital if required.Solid dividend payouts are arguably the biggest enticement for REIT investors, and AvalonBay has consistently paid dividends each year since it went public in 1994. In February 2025, concurrent with its fourth-quarter earnings release, AvalonBay increased its first-quarter 2025 dividend to $1.75 per share from $1.70 paid in the prior quarter. This represented a hike of 2.9% from the prior payout. Given the company’s solid operating platform, scope for growth and decent financial position compared to that of the industry, this dividend rate is expected to be sustainable in the long run.What Is Hurting AVB?The struggle to lure renters will persist, as supply volume is expected to remain elevated in some markets where the company operates. Furthermore, competition from alternative housing options, including rental apartments, condominiums and single-family homes, adds pressure. This competitive environment constrains the company’s ability to raise rents, moderating its growth potential.Despite the Federal Reserve announcing rate cuts late in 2024, the interest rate is still high and is a concern for AvalonBay. The company may find it difficult to purchase or develop real estate with borrowed funds, as the costs are likely to be on the higher side. AvalonBay has a substantial debt burden, and its total debt was approximately $8.36 billion as of March 31, 2025. Interest expenses increased 9.3% year over year to $59.9 million in the first quarter of 2025.So far in the quarter, shares of this residential REIT, with a Zacks Rank #3 (Hold), have fallen 6.9%, slightly narrower than its industry's 7.1% decline. Analysts seem bearish on it, with the Zacks Consensus Estimate for 2025 FFO per share having been revised marginally southward over the past week to $11.39.Image Source: Zacks Investment ResearchStocks to ConsiderSome better-ranked stocks from the broader REIT sector are VICI Properties VICI and W.P. Carey WPC, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.The Zacks Consensus Estimate for VICI’s 2025 FFO per share is pegged at $2.34, suggesting year-over-year growth of 3.5%.The Zacks Consensus Estimate for WPC’s 2025 FFO per share stands at $4.88, indicating an increase of 3.8% from the year-ago reported figure.Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.0% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report AvalonBay Communities, Inc. (AVB): Free Stock Analysis Report W.P. Carey Inc. (WPC): Free Stock Analysis Report VICI Properties Inc. (VICI): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks