On Jul 4, 2013, we reaffirmed our long-term recommendation on Apartment Investment & Management Co. (AIV), commonly known as Aimco, at Neutral. This was based on the company’s improved core operating portfolio performance in first-quarter 2013. However, stiff competition from other housing alternatives and a huge redevelopment pipeline somewhat restricts the company’s growth tempo.
Why Neutral?
Aimco reported a better-than-expected first-quarter 2013 results, with pro forma Funds from Operations (FFO) of 48 cents per share – which beat the Zacks Consensus Estimate by a penny and the year-ago quarter figure by 8 cents. Also, this was higher than Aimco's guidance range of $0.42–$0.46 per share.
Improved property operating results, a rise in the ownership of consolidated properties and a decrease in preferred stock dividend boosted the results. Aimco also raised its outlook slightly for full-year 2013 pro forma FFO.
Moreover, the demand generated by ‘echo boomers’ – children of the baby boomer generation – provides Aimco with ample growth opportunities in the coming quarters. This age cohort prefers to stay on their own but with the lack of stability in job market and rising student debt, owning a home has become difficult, steering them to rent apartments instead. Additionally, Aimco’s consistency in successfully disposing non-core assets to focus on markets with higher growth potential is helping it achieve efficiency amid a protracted economic recovery.
However, despite attempts to reposition its portfolio in higher growth markets, much of the company’s portfolio remains in areas where housing is relatively cheap. Moreover, the company has exposure to the Florida market, with over 15 conventional properties situated in the region. Historically, the weakness in the Florida real estate market has affected the company’s top line and we expect the headwinds to continue in the near term.
Following first-quarter 2013 results release, over the last 60 days, the Zacks Consensus Estimate for 2013 FFO per share rose 1% $2.03. On the other hand, for 2014, the Zacks Consensus Estimate for FFO per share remained stable at $2.20. Thus, this real estate investment trust (REIT) now carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
Better performing apartment REITs that are worth a look include AvalonBay Communities, Inc. (AVB), Sun Communities Inc. (SUI) and Camden Property Trust (CPT). All of them carry a Zacks Rank #2 (Buy).
Note: FFO, a widely accepted and reported measure of the performance of REITs is derived by adding depreciation, amortization and other non-cash expenses to net income.
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