Apartment Investment and Management Company AIV, better also known as Aimco, reported third-quarter 2015 pro forma funds from operations (“FFO”) of 57 cents per share, in line with the Zacks Consensus Estimate and 6 cents above the prior-year quarter figure. The company also raised its 2015 guidance.
The year-over-year improvement reflects solid property net operating income (NOI), increased contribution from redevelopment and acquisition communities, lower interest expense and higher income tax benefit. These were partly marred by a rise in other expenses and a loss of income from apartment sales.
Total revenue came in at $246.4 million, ahead of the Zacks Consensus Estimate of $239 million and almost unchanged from the prior-year quarter figure of $246.8 million.
Quarter in Details
In the Conventional real estate portfolio, same-store revenues increased 4.3% year over year to $164.9 million, while expenses climbed 1.9% year over year to $52.7 million. Consequently, same-store NOI climbed 5.4% to $112.2 million on a year-over-year basis.
Same-store average daily occupancy fell 10 basis points to 95.6% from the prior-year quarter. Average rent per apartment home increased 4.5% from the prior-year period to $1,567. Rental rates on new and renewals leases were up 6.6% and 6.0%, respectively, from the expiring lease rates.
At the end of the quarter, Aimco had cash and restricted cash on hand of $134.9 million. Moreover, there were 24 unencumbered apartment communities with an estimated fair market value of around $1.5 billion.
Further, as of the same date, Aimco’s outstanding borrowings on its revolving credit facility was $128.2 million and available capacity was $435.4 million, net of $36.4 million of letters of credit backed by the facility.
Portfolio Activity
During the third quarter, Aimco invested $29.9 million in redevelopment and agreed a plan for redevelopment of a second tower at Park Towne Place, in Center City, PA. Moreover, the company invested $40.3 million in two development communities in the quarter.
As intended, Aimco continues to sell the lowest rated 5–10% of its portfolio each year and use the proceeds for acquisition and redevelopment of higher quality apartments.
Accordingly, from Dec 31, 2011 to Sep 30, 2015, Aimco increased its period-end Conventional portfolio average revenue per apartment home by 43% to $1,810 and enhanced its Conventional portfolio free cash flow margin by 15%. Moreover, the company raised the percentage of its conventional property NOI earned in its target markets to 89%.
2015 Guidance
For 2015, Aimco raised its pro forma FFO per share guidance to the range of $2.20–$2.24 from $2.16–$2.26 guided earlier. The new guidance is backed by conventional same-store NOI growth of 5.4%–5.8% as against 5–6% predicted earlier. The Zacks Consensus Estimate of $2.22 falls within the guided range.
For fourth-quarter 2015, Aimco provided pro forma FFO per share guidance in the range of 56–60 cents. The company expects conventional same-store NOI change within 4.0–4.5% compared with the prior-year quarter. The Zacks Consensus Estimate of 59 cents falls in the projected range.
Dividend
Aimco had previously disclosed a quarterly cash dividend of 30 cents per share of Class A common stock for third-quarter 2015. The dividend, which marks a 15% year-over-year increase, will be paid on Nov 30, 2015 to stockholders of record as on Nov 18.
Conclusion
Aimco’s portfolio enhancement activity, through continued property sales and reinvestment of proceeds in select apartment homes with higher rents and superior margins, continue to strengthen its position in the high growth potential markets. The raised outlook also boosts investor confidence in the stock.
However, while its divestitures will boost profitability in the long run, the related near-term dilutive impact on this Zacks Rank #2 (Buy) stock’s earnings cannot be bypassed.
Investors interested in apartment REITs may consider other stocks like Avalonbay Communities Inc. AVB, Camden Property Trust CPT and Post Properties Inc. PPS. All these stocks carry the same rank as Aimco.
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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