AvalonBay Communities AVB

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AvalonBay Communities (AVB)

• By May Zaw and Carine

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What is AvalonBay?

• Avalon Bay is a (REIT).
• REIT Real Estate Investment Trust Fund.
• Two great things about REIT Tax Consideration
  and Dividend Payment.

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What does AvalonBay Do?

• Avalon Bay is an equity REIT.
• Currently owns or holds interests in over
• 45, 474 apartments.
• Portfolio concentration is in high barrier to
  entry markets.
• Generates income by renting or selling
  communities.

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Why Should We Invest in AvalonBay?

• The future of
• housing prices.
• How will housing prices affect Avalon Bay?

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Why Should We Invest in Avalon Bay?

• Housing prices bubble or bust?

There hasnt been a single year since the Great
Depression where housing prices of US has
dropped
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Housing Prices Bubble or Bust?

• Greenspan and Bernanke dismisses Housing Bubble
  Theory.
• "Overall, while local economies may experience
  significant speculative price imbalances, a
  national severe price distortion seems most
  unlikely in the United States, given its size and
  diversity,"
• The fundamentals matches the rise in housing
  prices.

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Why Real Estate Cannot Be A Bubble

• High Speculation Costs.
• Investors account for only 11 of the home
  buying.
• There is real value in real estate unlike the
  technology stocks of companies that had almost
  nothing.

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And Housing Prices Will Rise Even Higher

• Population Growth

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And Housing Prices Will Rise Even Higher

• Loss of agricultural and industrial jobs.
• General Motors plan to eliminate 30,000 hourly
  jobs by 2008, announced Monday in Detroit
• Since 2000, more than 100,000 hourly and
  salaried automotive jobs have been eliminated in
  the US.

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And Housing Prices Will Rise Even Higher

• Influx of immigration.
• Baby Boomer generation hasnt finished buying
  yet.
• Loosening lending standards.
• In large metro areas the supply of buildable land
  is drying up.
• Currently half of all Americans live within 50
  miles of a coastline. This number is expected to
  double over the next fifty years.

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Why AvalonBay?

• Portfolio is in high barrier to entry market
• Demand is 1.5x the supply.

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Why AvalonBay?

• Development Plans of 49 additional Communities
• that will yield 13, 459 communities.
• Development rights total over 3 billion.

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Why AvalonBay?

• Remarkable Past Performance.

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Why AvalonBay?

• Diversified Portfolio.

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Income Statement

• Periodic dips and jumps in net income due to
  apartment complex sales
• Increasing dividends payout

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Balance Sheet

• 96 of their assets are in real
  estates land and buildings
• Negligible cash and cash equivalents

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Cash Flow Statement

• Used a large portion of their cash to develop
  and acquire real estates
• Fluctuations in cash from financing activities
  largely due to debt repayments

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Profitability Valuation

• ROE 3 higher than industry average indicates
  effective management of investors money
• ROA is also above industry average, indicating
  sound asset management
• Deserve high P/E valuation as it has
  outperformed the industry for several years

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Per Share Data
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Risks

• High debt to equity ratio ? lower liquidity
• Positive operating cash flow, but insufficient to
  cover investment and financing
• High ROE due to debt when debt intake is high,
  stockholders equity shrinks relative to
  liabilities
• Vulnerable to interest rates fluctuations high
  interest rates may influence capital financing
• However, by focusing on areas where there is high
  housing demand such as California and Washington
  D.C., AVB might mitigate the risk associated with
  rising interest rates
• High P/E, but might be somewhat overvalued. The
  stock could be more of a short-term play based on
  price speculation

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Recommendations

• Target Price 115
• Stop Price 92
• Ask for 8 of Portfolio. Current Price 103.
  About 16 stocks. Value 1600
• Semi-Long Term Stock. Recommend we evaluate the
  stock again after it gives its dividends around
  late March.