BTIG Downgrades AvalonBay Communities As Peak Supply Forecast Is Pushed Back

AvalonBay Communities Inc (NYSE: AVB) recently announced a second-quarter cash dividend. The dividend is $1.47 per share and is payable July 16 to all common stockholders of record as of June 29..

The Analyst

BTIG's analyst James Sullivan downgraded AvalonBay Communities from Buy to Neutral. 

The Thesis

BTIG's Buy rating for AvalonBay was based on stronger same-store net operating income growth in the second half of 2018 and in 2019, but Sullivan said he now expects SSNOI results to fall below sector averages as new supply deliveries in the REIT's markets should not peak until the fourth quarter. The overall supply should gradually decrease in 2019; Sullivan said he previously  expected it to ease in Q4. 

Higher supply levels should lead to a lower SSNOI forecast, the analyst said. BTIG lowered its SSNOI growth assumptions for 2018 and 2019 from 2.4 and 3.1 percent to 2.2 and 2.3 percent, respectively. The average figures for apartment REITs are 2.5 and 2.9 percent.

Rising interest rates, slowing SSNOI growth, increased labor costs and less available land have resulted in slightly lower development returns, Sullivan said. The size of AvalonBay's pipeline has been declining, and Sullivan said he wouldn't be surprised if it shrinks further.  

Price Action

AvalonBay shares were down 0.6 percent at the time of publication Thursday.

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