There's a lingering fear that the remote work trend will cause more people to leave cities in the postpandemic world. And this has weighed heavily on urban-focused residential REITs like AvalonBay Communities (NYSE:AVB). In this Nov. 5, 2020, Fool Live video clip, Millionacres REIT analyst Matt Frankel, CFP, and Millionacres editor Deidre Woollard discuss how AvalonBay is doing and whether investors should be concerned.
Matt Frankel: First one is AvalonBay Communities. If you're not aware, they're the biggest residential REIT in the market. They have apartment properties primarily in high-cost areas. Think like New York, San Francisco, Boston. They're suffering from the same thing Empire State is, just on the residential side. The general fear is that people are going to be allowed to work remotely, so why would you do that in a high-cost area? Why not move out somewhere where you can live for half the price but still make your New York salary? There's definitely some logic in that. I tend to think it's more of a temporary shift. People who want to leave are going to leave, but then everyone else, it's going to calm down. You're seeing some of this in their numbers. Occupancy is down almost three percent year-over-year in their properties, same-store revenue is down about six percent, and a lot of that is some rent concessions they've made. Their core FFO, which is, like I said, their earnings, it declined 12 percent year-over-year, which is not great. But they're earning more than enough to keeping paying their dividend. They have tons of liquidity. They're still developing properties. They actually recently expanded into two not so high-cost markets, Denver and South Florida, which are not cheap markets, but they're not New York and San Francisco. That can be a nice little untapped opportunity. They're down 30 percent year-over-year. I know you [...] from the conference call that the management team said. What do you think about that AvalonBay going forward?
Deidre Woollard: Well, I think it's interesting that they are looking at shifting a little bit toward suburban locations and trying to be more diversified going forward. I think they're being cautious about that, which makes a lot of sense. I personally don't believe that big cities are going away. I don't think either of us do. But for the short-term, there is a little bit of a concern that some renters may leave, but companies are not going to abandon cities in whole, so I'm not overly worried about this stock for the long term at all.