Please ensure Javascript is enabled for purposes of website accessibility

Why AvalonBay Communities Stock Plunged 26% in the First Half of 2020

By Reuben Gregg Brewer – Updated Jul 7, 2020 at 10:15AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Apartment owner AvalonBay got hit along with the broader REIT space, but the impact of COVID-19 has yet to really hit home.

What happened

Shares of apartment-focused real estate investment trust (REIT) AvalonBay Communities (AVB 1.48%) 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.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Vanguard REIT ETF. The Motley Fool recommends AvalonBay Communities. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

AvalonBay Communities, Inc. Stock Quote
AvalonBay Communities, Inc.
AVB
$184.19 (1.48%) $2.69

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
326%
 
S&P 500 Returns
102%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.