Shares of real estate investment trust (REIT) AvalonBay Communities ( AVB 1.75% ) rose just shy of 20% in November, according to data from S&P Global Market Intelligence. Although that monthly gain is impressive, at the end of November the stock is still down by 20% for the year.
The big story, as is so often the case in 2020, is about the coronavirus pandemic. AvalonBay owns apartments in densely populated regions with high average incomes. That means its assets are located in and around large coastal cities. It is exactly these cities that are seeing an exodus because of fears surrounding COVID-19. To put a number on the impact this is having, AvalonBay's core funds from operations fell 12% year over year in the third quarter; this is why the stock has fallen so much this year.
The November gain was driven by positive news on the coronavirus vaccine front. A series of drugmaker updates during the month made investors feel like there was a light at the end of the tunnel. That, in turn, led to a rally in hard-hit shares -- like AvalonBay -- that might benefit as the world finds a way to deal with the coronavirus. The problem is that AvalonBay's performance isn't going to turn materially higher in a single month -- it will likely take many months, or even quarters, before a vaccine is distributed widely enough to have a material impact on the trajectory of COVID-19. And only after that point is it likely that people will start returning to cities in material numbers.
AvalonBay is a well-run REIT and a long-term bet that cities will again draw residents. History suggests that this will play out, in time, as people gravitate toward cultural and social hubs. But the stock's quick upturn in November shouldn't be seen as a sustainable long-term trend. Indeed, if recent results are any indication, things are likely to get worse at AvalonBay before they get better.