AvalonBay: With Margin Of Safety Gone, We Downgrade To Hold

Core Viewpoint - AvalonBay's shares have performed well, delivering nearly 17% total returns in about six months, surpassing the S&P 500 index [1] - The recent second quarter results indicate solid earnings, prompting a reevaluation of the investment thesis [1][3] Financial Performance - Occupancy improved slightly to 96%, with average rental rates increasing by 3.2% [3][4] - Operating costs rose by approximately 3.8%, while same-store net operating income (NOI) increased by around 3% [4] - Core funds from operations (FFO) were reported at $2.77 per share [4] Development and Growth - The projected weighted yield for 2024 development starts is guided at 6.4$2,000 per month [5] - Development starts exceeded $1 billion, primarily concentrated in the East Coast and suburban markets [6] Outlook and Guidance - For the full year 2024, AvalonBay is guiding for core FFO per share growth of 3.7$300 million more in acquisitions by year-end if attractive opportunities arise [11] Valuation - The current valuation shows a lack of margin of safety, with the Price/FFO per share slightly below the ten-year average [14] - The net present value (NAV) is calculated at approximately $197 per share, aligning closely with current trading prices, leading to an adjustment of the rating to "Hold" [15][14]