Two REITs Flying Under the Radar: AVB and O Offer Safe Harbor in Turbulent Markets

The REIT sector has faced a rough ride in recent years, pressured by high interest rates and economic uncertainty. Yet, amid this turmoil, two names—AvalonBay Communities (AVB) and Realty Income (O)—are quietly building long-term value while trading at discounts to their historical norms. These dividend dynamos are under-the-radar gems, offering both income and growth potential in an era where stability is scarce. Let's dig into why these REITs deserve a spot in your portfolio.

AvalonBay (AVB): The Apartment Giant Playing a Smart Long Game

AvalonBay is the nation's largest apartment REIT, with 93,500 units across 11 states. Its Q2 2025 outlook shows it's not just surviving but thriving. Projections for diluted EPS of $1.78–$1.88 and FFO of $2.69–$2.79 reflect confidence in its strategy. But what really sets AVB apart is its geographic diversification and aggressive expansion into growth markets.

• Texas Dominance: AVB's $618.5 million acquisition of 2,701 units in Austin and Dallas—markets with 10%+ annual rent growth—is a masterstroke. These Sunbelt cities, fueled by tech and energy sectors, are magnets for young professionals.
• Debt Discipline: Despite its size, AVB maintains a debt-to-EBITDAre ratio of 4.3x, well below industry averages. Its recent $450 million Term Loan at 4.47% locked in low rates, shielding it from future hikes.
• Undervalued: With a P/FFO of 13.5x (below its 5-year average of 16x), AVB is a steal. The market is overlooking its 3.47% dividend yield and 12.5% total return CAGR since 1994, which trounces the S&P 500.

Realty Income (O): The Monthly Dividend Machine

Realty Income, the “Dividend King,” has paid 131 straight quarterly dividend increases. Its Q2 2025 outlook? More of the same. With a 5.8% dividend yield (vs. the S&P's 1.3%) and a P/FFO of 13.5x—below its 5-year average of 16x—this is a buy now opportunity.

• Essential Exposure: Realty Income owns 15,600+ properties, 75% in recession-resistant sectors like healthcare, self-storage, and convenience retail. Even in a downturn, these leases (averaging 10 years) keep cash flowing.
• Global Diversification: Europe is the next frontier. Its $1.2 billion acquisition of UK properties and forays into Germany and France are smart bets on steady demand.
• Consistency Over Growth: While others chase flashy deals, Realty Income focuses on low-risk, high-occupancy (98.5%) assets. Its 75% FFO payout ratio leaves ample room for future hikes.

Why Now? The Undervaluation Case

Both stocks face headwinds, but the risks are overpriced in their valuations:

• Interest Rates: Higher rates hurt REITs, but both have floating-rate debt hedges and conservative balance sheets. AVB's 4.3x leverage and Realty's investment-grade ratings are bulwarks.
• Economic Slowdown: Their focus on defensive sectors (apartments in job-rich cities, essential retail) limits downside. AVB's Texas portfolio and Realty's healthcare assets are recession proof.

The Bottom Line: Buy the Dip, Harvest the Dividends

AVB and O are contrarian plays—undervalued, misunderstood, and primed to rebound. Here's how to play them:

1. AVB: A core holding for its scale and growth. Target $200–$220, with a 12–18 month price target of $250.
2. O: A monthly dividend staple. Buy dips below $58, targeting $65+ in 2026.

Final Thought

In a market obsessed with growth at all costs, these REITs offer value and stability. They're not just surviving—they're building empires in overlooked niches. If you're after dividends that outlast storms and capital appreciation when the market wakes up, these two are must-haves.

Action Items:
- AVB: Buy on dips; use $200 as a floor.
- O: Accumulate below $58; set alarms for $55.
- Hold for: 3+ years to let compounding work.

The S&P 500 may shine today, but AVB and O are the stars that will glow brighter tomorrow.

Disclaimer: Always do your own research. Market conditions and company performance can change rapidly.