Apartment Investment and Management Company AIV, better known as Aimco, reported third-quarter 2019 pro forma funds from operations (FFO) of 64 cents per share, beating the Zacks Consensus Estimate of 63 cents. Also, the figure represents 1.6% improvement from the year-ago quarter.
Quarterly results benefited from decent growth in same-store property net operating income (NOI) and lower cost of leverage. These positives were partly offset by revenues lost from the company’s Asset Management business sale. Based on its performance so far in the year, the company has also raised its outlook for pro forma FFO per share for 2019.
Notably, total revenues of $229.8 million in the reported quarter surpassed the Zacks Consensus Estimate of $227.2 million. However, the revenue figure comes in roughly 5.2% lower than the prior-year quarter’s reported tally.
Quarter in Detail
Same-store revenues (before utility reimbursements) increased 3.8% year over year to $179.1 million, while expenses (net of utility reimbursements) flared up 3.1% to $48.2 million. Consequently, same-store NOI climbed 4.1% year over year to $130.9 million.
Same-store average daily occupancy expanded 40 basis points (bps) year over year to 96.8%. Rental rates on new leases were up 2.5%, whereas renewal rental rates increased 4.6%.
As of Sep 30, 2019, Aimco had cash and restricted cash of $93 million. Moreover, the estimated fair market value of the company’s unencumbered apartment communities was around $2.4 billion.
Furthermore, at the end of the third quarter, Aimco had borrowing capacity of $793 million under its revolving credit facility, after consideration of $7 million of letters of credit backed by the facility.
Notably, Aimco is focused on taking advantage of current interest rates to extend duration, reduce refinancing risk, and lower its cost of debt. During the reported quarter, the company lowered its annual cost of leverage by approximately 10 bps and extended balance-sheet duration.
Aimco financed $668 million worth of new non-recourse, fixed-rate property debt at a weighted-average interest rate of 3.34% and a weighted-average maturity of 11.4 years. The company also rate-locked an $100-million fixed-rate, non-recourse, property loan, at a 3.21% interest rate and an 11-year term to maturity.
Portfolio Activity
During the September-end quarter, Aimco acquired a 95% ownership in 1001 Brickell Bay Drive — a 350,000-square-foot office building and land contiguous to its Yacht Club Apartments — for $157 million. However, the company made no dispositions in the said period.
During the reported quarter, Aimco invested $71 million in redevelopment and development activities. In addition, the company is revamping its portfolio through property sales, and reinvesting the proceeds in select apartment homes with higher rents, superior margins and higher-than-anticipated growth.
Through these moves, Aimco increased its average revenues per apartment home by 6% to $2,262. However, NOI margin slipped to 71% from the year-ago quarter’s 72%. The company’s percentage of A, B and C+ home was 52%, 30% and 18%, respectively, in third-quarter 2019.
Guidance
For full-year 2019, the company has revised its pro forma FFO per share guidance to $2.47-$2.51 from $2.44-$2.52, reflecting a 1 cent projected increase at the mid-point. The Zacks Consensus Estimate for the same is $2.48.
The company’s full-year projections are backed by assumptions of same-store revenue growth of 3.6-3.8% and same-store expense growth of 2-2.6%, resulting in same-store NOI improvement of 4-4.4%.
For fourth-quarter 2019, Aimco has issued pro forma FFO per share guidance of 62-66 cents. The Zacks Consensus Estimate for the same is pegged at 64 cents.
Bottom Line
Aimco’s better-than-expected third-quarter results are encouraging. With a diversified portfolio of residential properties located in key markets, the company is likely to benefit from favorable demographics, household formation trends and stable job-market conditions. Also, the REIT’s efforts to improve its portfolio quality and invest in valuable properties augur well for long-term growth. Nevertheless, elevated levels of apartment deliveries might keep curtailing the company’s growth tempo, affecting occupancy and rent growth.
Aimco currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Apartment Investment and Management Company Price, Consensus and EPS Surprise
Apartment Investment and Management Company price-consensus-eps-surprise-chart | Apartment Investment and Management Company Quote
We, now, look forward to the earnings releases of other REITs like Realty Income Corporation O, Outfront Media Inc. OUT and Host Hotels & Resorts, Inc. HST, all of which are slated to report their quarterly numbers next week.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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