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Investing.com -- S&P Global Ratings revised its outlook for AvalonBay Communities Inc. to positive from stable, while affirming the company’s current ratings.
The rating agency cited AvalonBay’s strong balance sheet and solid operating performance as key factors behind the outlook change. In the third quarter of 2025, the multifamily housing operator reported same-store residential revenue growth of 2.3% year-over-year, with operating expenses increasing 4.6%, resulting in same-store residential net operating income (NOI) growth of 1.1%.
AvalonBay maintained high occupancy of 95.7% with good tenant retention during the quarter. Year-to-date same-store NOI through September 30 remained strong at 2.1%, with residential revenue up 2.7% and expenses rising 4.1%.
The company has been strategically repositioning its portfolio to increase its allocation to suburban and expansion markets. AvalonBay aims to achieve a portfolio composition of 80% suburban assets and 25% in key expansion regions. This strategy has involved selling slower-growth, older properties in established regions and redeploying proceeds into higher-growth expansion markets.
S&P noted that while some Sunbelt markets face pressure from new supply, AvalonBay remains largely insulated as most of its portfolio is located on the West and East coasts. The company recently completed $450 million in Washington D.C. asset sales at a 5.5% cap rate as part of its plan to reduce Mid-Atlantic exposure from 15% to 11% of its portfolio.
AvalonBay’s development pipeline stood at $3.2 billion as of September 30, 2025. The company has pre-funded 95% of this activity with proceeds from dispositions and forward equity. Asset sales have exceeded $800 million year-to-date through September 30, while approximately $889.3 million in forward equity is set to be settled in the fourth quarter of 2025 and 2026.
S&P expects AvalonBay to maintain its leverage ratio near 5x or better as it advances its portfolio optimization. The company’s S&P Global Ratings-adjusted debt to EBITDA was 4.8x for the trailing 12 months ended June 30, 2025, with fixed-charge coverage of 6.2x.
The positive outlook reflects S&P’s expectation that AvalonBay will achieve high occupancy and steady rental rate growth over the next two years, supported by continued demand for quality, well-located apartments. The rating agency projects adjusted debt to EBITDA to remain in the high-4x area in 2025 and 2026 with fixed-charge coverage above 5x.
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