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AvalonBay Communities Inc (AVB), Equity Residential (EQR): Is This REIT a Dangerous Investment?

Investing in REITs is an interesting game. Most investors take an interest because of generous dividend payments. However, many of these REITs are also highly leveraged. AvalonBay Communities Inc (NYSE:AVB) fits somewhere in the middle.

AvalonBay Communities Inc (NYSE:AVB)

We’ll take a look at whether or not this is a positive or a negative and if now is a good time to be investing in REITs, and if so, whether another REIT is likely to perform better.

A responsible firm

Unlike many REITs, AvalonBay Communities Inc (NYSE:AVB) has displayed quality debt management, sporting a debt-to-equity ratio of just 0.68, versus an industry average of 1.2. And while AvalonBay Communities Inc (NYSE:AVB) might not offer enormous dividend payments like other REITs, a 3.10% yield is not to shabby.

AvalonBay Communities Inc (NYSE:AVB) develops, redevelops, owns, and operates multifamily communities in the United States. Below are some key stats for AvalonBay Communities Inc (NYSE:AVB):

  • Owns 272 apartment communities
  • Owns 81,279 apartment homes
  • 27 apartment communities under construction
  • 5 apartment communities under reconstruction
  • FFO jumped 20.9% year over year
  • Same-store rental revenues up 5.2% year over year
  • Average rental rates increased 4.3% year over year
  • Management upped its FY2013 FFO guidance to $5.05-$5.25 from $4.98-$5.28

AvalonBay Communities Inc (NYSE:AVB) strategically aims for high-barrier-to-entry markets, where there’s a low supply of zoned apartment land. AvalonBay also focuses on coastal markets, which often allows for higher rental rates.

AvalonBay’s occupancy rates are up, and annual revenue has shown consistent growth. Earnings declined in 2012, but large profits should become more common. AvalonBay also has no intention of slowing down, as it has the rights to develop 27 more communities. One potential negative is that AvalonBay is trading around 47 times earnings.

Related options

Apartment Investment and Management Co. (NYSE:AIV)., otherwise known as AIMCO, has seen consistent revenue declines annually and quarterly.

AIMCO aims for high-growth markets. Its operating portfolio has improved, and the pipeline is strong. Like AvalonBay, Aimco has seen increased demand and upped its guidance.

Aimco currently yields 3.70%, but it also owns a debt-to-equity ratio of 3.97. AIMCO has been divesting its non-core assets and focusing on its better-performing assets in order to reduce debt and improve profitability. However, debt is still a concern, and if interest rates increase in the near future, it could negatively impact AIMCO’s business and stock price. Additionally, AIMCO is trading around 42 times earnings, making it expensive.

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