AvalonBay Communities (AVB 1.96%) is one of the country's largest landlords. It owns 315 apartment communities with over 97,000 units across major coastal cities and faster-growing markets in the Sun Belt.
Demand for apartments in those markets has been exceptionally strong over the past five years. Given this trend, here's how much money you'd have today if you had invested $1,000 into the real estate investment trust (REIT) five years ago.
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Capitalizing on the post-pandemic rental housing boom
The pandemic was in full effect five years ago, and it had significant impacts on the housing market. Many people in large coastal cities moved to less restrictive markets in the Sun Belt region. That migration initially affected rental housing demand in AvalonBay's core coastal markets, weighing on its stock price.
Investors who capitalized on the residential REIT's initial pandemic-driven dip have seen solid results over the past five years. A $1,000 investment in AvalonBay's stock would now be worth over $1,250 based solely on share price appreciation. Additionally, AvalonBay has consistently delivered attractive and growing dividend payments during this period. With dividends reinvested, that $1,000 investment would have grown to $1,490 today. This represents a decent 8.3% average annual total return.
AvalonBay has benefited from the recovery of rental housing demand in its core coastal markets, which now maintain high occupancy rates above 90% and steady rent growth of 1% to 2% annually. Meanwhile, its strategy to expand into growth markets such as Charlotte, Raleigh-Durham, Dallas-Fort Worth, and Austin in 2021 has paid off. Though occupancy rates in its expansion markets are lower, in the mid-80% range, rent growth is faster, at 2%-4% annually.
AvalonBay plans to accelerate its transition toward expansion markets, targeting 25% of its portfolio in these regions over the next several years, up from 12% today. This shift aims to drive faster rent growth, positioning the REIT to continue increasing its high-yielding dividend, which currently sits at 3.7%. These initiatives could enable AvalonBay to generate even higher total returns over the next five years, making the REIT look like a compelling long-term investment opportunity.
