AvalonBay Communities (AVB), mcap=$24915m

AVB pitch:
– REIT that owns a multi-family portfolio in the US coastal markets.
– Cheap relative to private market values, peers, and on an implied cap rate spread.
– Market is not putting any value on four potential tailwinds that are supportive of AVB’s rent growth.
– AVB’s markets will see muted apartment supply in 2023 which will further decelerate in 2024.
– The inventory of existing single-family homes is at record lows and new households will be forced to move into apartments instead of single family homes.
– AVB’s apartments are more affordable as they did not experience excessive rent growth.
– Rents have only grown at a 2% CAGR since COVID versus ~20% cumulative wage inflation over the past 3 years.

AVB valuation:

– AVB trades at a 6.5% implied cap rate, this presents a 22% discount compared to the private market values. 
– AVB traded at such a discount only during GFC and the initial weeks of COVID.

Exp. gain: Not specified.

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