On Tuesday, Barclays (LON:BARC) made a notable adjustment to its stance on AvalonBay Communities, Inc. (NYSE:AVB), elevating the company's stock rating from Equal Weight to Overweight. Accompanying this upgrade, the firm also increased AvalonBay's price target to $204 from the previous $194.
The upgrade was attributed to AvalonBay's unique position among its coastal peers, marked by its exceptional development capabilities. The company is expected to deliver approximately 2,625 apartment homes in 2024, a figure that is more than double the deliveries made in 2023. These new developments are projected to contribute an additional $40 million in incremental net operating income (NOI) for the year 2024.
AvalonBay's operational model initiatives and developer funding programs are anticipated to continue propelling revenue growth throughout 2024. This is particularly significant given the backdrop of a moderating rent growth environment. Barclays' analyst highlighted that despite these conditions, AvalonBay's forecasted increase in apartment unit deliveries is a strong revenue driver.
The company's capital allocation strategy is also expected to shift, with AvalonBay likely to become a net seller in 2024. The proceeds from these sales are projected to be reinvested into further development activities. This strategy is deemed feasible due to the 10-year interest rate curve maintaining a low to mid 4% range.
However, Barclays also cautioned investors to be aware of potential challenges AvalonBay may face in the next year. These include the impact of disposition activities, an increase in interest expense due to anticipated debt financing activities in 2024, and a possible decline in interest income resulting from the company's above-average cash balance in the fiscal year 2023. These factors could present headwinds that the company will need to navigate.
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