Apartment Investment and Management Company’s (AIV) – better known as Aimco – portfolio enhancement activity through lowest-rated portfolio divestitures and reinvestment of the proceeds in select apartment homes with higher rents, superior margins and greater-than-expected growth, continue to strengthen its position in premium markets.
Particularly, the company projects its redevelopment projects, upon stabilization, to add around $1.50 to Net Asset Value per share in the next two years. Also, Aimco’s strong portfolio of B/B+ geographically diversified assets and the expected rise in demand for apartment properties driven by the ‘echo boomers’ position it well for growth.
In July, Aimco reported second-quarter 2014 pro forma funds from operations (FFO) of 52 cents per share, a penny ahead of the Zacks Consensus Estimate and 3 cents above the year-ago quarter figure. Also, the company increased the lower end of its 2014 pro forma FFO per share guidance range.
Improved operating portfolio performance, contribution from redevelopment communities and lower offsite costs drove the 6.1% year-over-year rise in pro forma FFO per share. However, loss of income due to assets divestiture acted as the headwind.
While it is a strategic fit on Aimco’s part to sell non-core assets and buy property in higher growth infill areas, the dilutive impact on earnings from such assets dispositions cannot be avoided in the near term. Furthermore, though a notable construction projects pipeline is expected to help in rental revenue escalations in the future, we believe that the upfront increase in estimated cost can weigh upon the 2014 earnings.
To gain deeper insight into Aimco, you can refer to our updated research report, which was issued on Sep 3, 2014.
Over the last 60 days, the Zacks Consensus Estimate for 2014 and 2015 FFO per share increased by 2 cents and 3 cents to $2.08 and $2.23, respectively. Consequently, the stock currently has a Zacks Rank #2 (Buy).
Stocks That Warrant a Look
Better-ranked residential REITs include Equity LifeStyle Properties, Inc. (ELS), Avalonbay Communities Inc. (AVB) and Essex Property Trust Inc. (ESS). All these stocks have the same rank as Aimco.
Note: FFO, 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.
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