Apartment Investment and Management Company (AIV), or Aimco as the real estate investment trust (REIT) is popularly known, reported fiscal 2011 first quarter recurring funds from operations (FFO) of 39 cents per share, which beat the Zacks Consensus Estimate by 3 cents. Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
We cover below the results of the recent earnings announcement, as well as the subsequent analyst estimate revisions and the Zacks ratings for the short-term and long-term outlook for the stock.
Earnings Report Review
During the quarter, total revenues stood at $286.6 million, compared to $276.8 million in the year-ago period. Total revenues for the reported quarter surpassed the Zacks Consensus Estimate of $278 million.
In the conventional real estate portfolio, Aimco had a weighted average ownership of 94%. Average rents in the same-store conventional real estate portfolio increased 0.6% during the quarter to $1,049 per unit from $1,043 during first quarter 2010. Rental rates on new leases in the conventional real estate portfolio were 1.9% higher than the expiring lease rates. First quarter 2011 renewal rates were 3.0% higher than the expiring lease rates.
(Read our full coverage on this earnings report: Aimco Surpasses Estimates)
Earnings Estimate Revisions – Overview
Fiscal earnings estimates have moved up for Aimco since the earnings release, meaning that analysts are mostly bullish about the long-term performance of the company. Let’s dig into the earnings estimate details.
Agreement of Estimate Revisions
In the last 7 days, fiscal 2011 earnings estimates were raised by 3 of the 17 analysts covering the stock, while none lowered it, indicating a positive directional movement for the fiscal year earnings. For fiscal 2012, 1 of the 18 analysts covering the stock revised his estimate upward, while 2 moved in the opposite direction. This signifies that the analysts hold a circumspect outlook regarding the long-term earnings of the company.
Magnitude of Estimate Revisions
Earnings estimates for fiscal 2011 have remained stagnant in the last 7 days at $1.55. For full year 2011, Aimco expects recurring FFO in the range of $1.49 – $1.59 per share. For fiscal 2012, earnings estimates have remained stable at $1.72 during the same time period.
Management expects a steady improvement in the overall results of the company through stringent cost-control initiatives and revenue maximization efforts by maintaining high occupancy and rental rates.
Moving Forward
The long-term earnings estimate picture for Aimco is neutral. Aimco is one of the largest owners and operators of multifamily apartments in the U.S., with a diversified portfolio of conventional, affordable and student housing communities.
The company has a strong portfolio of Class ‘B’ and Class ‘C’ properties primarily catering to the middle-income market. In addition, Aimco rents and leases its apartment units to a diverse base of residents. This provides a strong upside potential for the company.
However, despite attempts to reposition its portfolio in higher growth markets, much of the company’s portfolio still resides in areas where housing is relatively cheap. As the company continues to sell non-core assets and buy in high-growth infill areas, we expect continued earnings dilution.
We maintain our ‘Neutral’ rating on Aimco, which currently has a Zacks #3 Rank that translates into a short-term ‘Hold’ rating, indicating that the stock is expected to perform in line with the overall U.S. equity market for the next 1–3 months. We also have a ‘Neutral’ recommendation and a Zacks #3 Rank for Equity Residential (EQR), one of the competitors of Aimco.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/
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