What happened

Shares of apartment-focused real estate investment trust (REIT) AvalonBay Communities (NYSE:AVB) fell 26% through the first six months of 2020 according to data from S&P Global Market Intelligence. The broader REIT sector, as measured by Vanguard Real Estate ETF, was down around 15%. There's some logic to AvalonBay's laggard performance.

So what

AvalonBay owns apartments. Its focus is on the higher end of the industry, with properties often located in high-barrier-to-entry markets. It's also an active portfolio manager, selling older apartments to help fund acquisitions of newer locations or, very often, the costs of building units from the ground up. It is generally considered one of the better-run names in the apartment niche. But COVID-19 is a very real headwind. So far, the hit hasn't been too big a deal, with rising costs for cleaning being the main trouble spot. 

Fingers flipping a die that says short and long with dice spelling "term" next to it

Image source: Getty Images.

But that's largely because unemployment benefits and other government payments have helped people who are out of work because of COVID-19. AvalonBay's update for May highlighted that the company had collected 95% of its rents and had a 94.4% occupancy rate. That's not bad, given that the U.S. entered a recession in February and, of course, the massive dislocations caused by COVID-19. However, the company's occupancy was down from 95.3% in April. That's a big one-month decline and suggests that AvalonBay's business is going to see increasing stress in the months ahead as government assistance runs its course. Without that extra cash, an increasing number of renters are likely to stop paying all of their bills. The fact that the effort to contain COVID-19 isn't going as smoothly as hoped isn't likely to make things any easier.  

Now what

AvalonBay is an REIT that should interest long-term dividend investors looking to own industry-leading companies. However, right now, it might be best for more conservative types to put the stock on their wish list. There's still a great deal of uncertainty about how the impact of COVID-19 plays out here.