AvalonBay Communities

Methodology

This method has limited applicability for AvalonBay Communities as a multi-family residential REIT, since REITs must distribute most income and reported EPS doesn't capture the cash-generating ability of apartment properties. The company's revenue comes from rental income in high-barrier-to-entry coastal markets with strong demographics. Investors should use FFO or AFFO-based valuation models rather than traditional earnings approaches for apartment REITs.

Methodology

Traditional PEG analysis is problematic for AvalonBay because GAAP earnings include depreciation charges that don't reflect properties maintaining or appreciating in value. If using PEG, substitute FFO or AFFO growth for EPS growth to get meaningful results. Even then, apartment REITs are better evaluated on implied cap rates, same-store NOI growth, and development returns rather than earnings-based multiples.

Methodology

AvalonBay's dividend yield (typically 3.0-4.5%) represents a core component of total returns for a residential REIT focused on high-quality coastal apartment communities. The company balances current distributions with reinvestment in new development and property upgrades in target markets. PEGY is more relevant than PEG for AvalonBay, though apartment investors should focus primarily on occupancy trends, rent growth in key markets, and development pipeline economics rather than earnings-adjusted multiples.