Apartment Investment and Management Company (AIV) – better known as Aimco –commenced a public offering comprising 8.2 million shares of its common stock. The underwriters would also be granted a 30-day option to buy up to an additional 1.23 million shares of its common stock.
Using the proceeds reaped from this public offering, the company plans to pay back its debt under its revolving credit facility. The company would also use the proceeds for its general corporate needs.
The stock has been scaling new 52-week highs in recent times on improving market fundamentals and anticipation of a continued low rate environment for an extended time. We expect this stock offering to help enhance the company’s financial flexibility and manage obligations efficiently. However, the share dilution impact from this stock offering is not avoidable.
Going forward, we believe that Aimco’s portfolio enhancement activity, through continued property sales and reinvestment of proceeds in select apartment homes with higher rents, superior margins and greater-than-expected growth, continue to strengthen its position in markets with high-growth potential. Rise in demand for apartment properties driven by echo boomers also promises growth prospects. Nevertheless, the divestitures will have an adverse effect on earnings in the near term.
Aimco is slated to release its fourth-quarter 2014 results on Feb 5, 2015, after the market closes. Currently, the Zacks Consensus Estimate for the stock is pegged at 55 cents per share.
In third-quarter 2014, this residential real estate investment trust’s (“REIT”) pro forma funds from operations (“FFO”) of 51 cents per share came in line with the Zacks Consensus Estimate and a penny above the year-ago quarter figure. Results were backed by improving operating portfolio performance and enhanced contribution from redevelopment communities. The company has raised its same-store guidance, which is encouraging.
Other Stocks to Consider
Aimco currently carries a Zacks Rank #3 (Hold). Investors interested in the residential REIT industry may consider better-ranked stocks like Equity LifeStyle Properties, Inc. (ELS), Equity Residential (EQR) and Post Properties Inc. (PPS). All these stocks hold a Zacks Rank #2 (Buy).
Note: 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.
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