- The Washington Times - Monday, September 11, 2000

Avalonbay Communities Inc. knows how to capitalize on the competitive housing market in cities such as New York, Boston and metropolitan Washington.
That's the word on Wall Street driving investors to buy stock from the Alexandria real estate investment trust (REIT), which is aggressively developing and reconstructing rental housing in highly dense areas.
"It's very much a landlords market," said John Sheehan, associate analyst for A.G. Edwards. "People have to live somewhere. They know that those markets are going to stay strong for a while."
REIT share prices lagged from March 1998 through the end of 1999 even as many investors were taking money out of non-technol-
ogy sectors, said Rod Petrick, analyst with Legg Mason Wood Walker.
"Even though most REITs continued to have solid fundamentals with earnings growth, their share prices declined," he said.
But, REITs were not the only stocks to have this pressure. The utility and energy sectors also suffered amid the frenzied interest in technology stocks.
"This technology craze has had an impact," Mr. Petrick added.
But the market is back from the slump, and Avalonbay felt that surge as it brought its stock price up to the $40-per-share mark in the middle of its second quarter in May.
The stock is currently trading on the New York Stock Exchange at about $45 per share. Thirteen of the 14 analysts that follow the company suggest buying the stock. The stock closed Friday at $46.43 on the New York Stock Exchange.
There are several reasons and why Avalonbay has been successful, analysts say.
The inverse relationship between technology stocks and real estate stocks is one reason, explained Mr. Sheehan. By May, as many investors had cashed out of the technology sector because of Nasdaq volatility, they started investing in real estate, which Mr. Sheehan considers a safer place for money right now.
"People were already starting to feel uncomfortable and REITS are seen as sort of a safe haven," he said. "They're slow and steady."
Consistently increasing earnings also have kept investors interested.
The company reported funds from operations (FFOs) a measure of profit for real estate investment trusts of $61 million (90 cents per diluted share) from $51 million (77 cents) for the like quarter last year, a 20 percent increase.
The company's diluted earnings per share, a measure of profit per common share of the stock, was nearly 17 percent higher than the previous quarter.
"Their FFO was up 17 percent. For the average 10.8 percent on earnings, they're definitely out-performing their peer group," Mr. Sheehan said.
That profit has translated into more development.
Avalonbay will begin construction at the end of the year on stacked, multifamily housing in Arlington, behind the Pentagon. The structures will resemble those in Old Town Alexandria.
The company also develops apartment complexes in California, where Avalonbay will be the beneficiary of a critical housing shortage, Mr. Sheehan explained.
"There're just more jobs and more people than there's room for," he said. "That's good for the owners of apartments in California."
But Avalonbay's path to success has not been without pitfalls. High land costs in big cities coupled with the expensive, time-consuming entitlement process have kept a lot of local developers "out of sight," Mr. Petrick said.

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