Maximizing returns strategy
AvalonBay Communities’ (AVB) principal goal is to increase long-term shareholder returns through the development, redevelopment, acquisition, operation, and strategic disposition of apartment communities in markets. The company’s strategy is to be a leader in delivering a range of multi-family offerings tailored to serve the needs of the customers in the best-performing US sub-markets.
The company pursues the following strategy to meet its long-term goals:
- regularly monitor investment allocation by geographic market and product type
- develop, redevelop, and acquire an interest in apartment communities in selected markets
- sell apartment communities that no longer meet long-term strategy, and redeploy the proceeds from those sales to generate higher returns
- maintain a capital structure that is aligned with business risks with a view to maintaining continuous access to cost-effective capital
“Development” refers to the entire property development cycle, including the pursuit of zoning approvals, the procurement of architectural and engineering designs, and the construction process. As one of the largest developers of multi-family rental apartment communities in the selected markets, generating higher returns from property development is the core of AvalonBay Communities’ strategy. The goal of redevelopment is to renovate or rebuild an existing community so that the total investment stays below replacement cost while generating attractive returns on capital.
The company sells assets that no longer meet its long-term strategy. It also sells assets during favorable market conditions. The company redeploys the proceeds from those sales to develop, redevelop, and acquire communities, as well as to re-balance its portfolio across or within geographic regions. This also provides additional liquidity.
AvalonBay Communities is very selective when it comes to acquisitions. Acquisitions allow the company to achieve rapid penetration into markets to enhance its presence and take on competition from major apartment REITs such as Equity Residential (EQR), Essex Property Trust (ESS), and UDR (UDR). Acquisitions and dispositions also help the company to achieve its desired product mix or to re-balance its portfolio. The iShares U.S. Real Estate ETF (IYR) invests 2.78% of its portfolio in AvalonBay Communities.
In the next article, we will analyze AvalonBay Communities’ revenue.