I Didn't Expect It To Get This Cheap - AvalonBay Communities

Core Thesis - AvalonBay Communities (AVB) has entered an attractive valuation range, prompting potential investment interest based on expected growth in Core FFO and AFFO per share in 2027 or 2028 [1][2]. Valuation Insights - Current multiples for AVB are at the low end of historical ranges, indicating a potential for higher multiples as growth resumes [2][22]. - The share price is currently lower than it was at the start of 2016, but actual returns have been better due to dividends [9][11]. Growth Expectations - Core FFO and AFFO are expected to be flat in 2026 due to two main factors: increased property under construction and pressure on apartment rents from the RealPage situation [3][8]. - A favorable environment for growth is anticipated in 2027 and 2028 as new unit deliveries decrease, leading to higher same-property revenue growth [8][29]. Financial Metrics - AVB's projected construction starts for 2025 are $1.65 billion, with a weighted average yield of 6.2%, expected to drop to $800 million in 2026 [30]. - The AFFO multiple is currently at 81.70% of the average, indicating that AVB is trading at a relatively cheap valuation [23][25]. Market Conditions - The supply of new apartments is expected to remain low, which is beneficial for landlords and aligns with AVB's strategic focus on upper-end apartments in coastal markets [29][43]. - The company is shifting its focus from the Northeast and California to markets in Florida, Texas, and Colorado, which may provide better growth opportunities [43]. Dividend and Returns - AVB offers a reasonable dividend yield of around 4%, with a conservative payout ratio, making it an attractive option for income-focused investors [46].