In concurrence with the recently announced secondary offering of 11 million shares, Apartment Investment and Management Company (AIV), or Aimco, as the real estate investment trust (REIT) is popularly known, has just updated its fiscal as well as its second quarter 2012 funds from operations (FFO) guidance. Funds from operations, a widely used metric to gauge the performance of REITs, are obtained after adding depreciation and amortization and other non-cash expenses to net income.
Earlier, Aimco had announced an equity offer of 11 million shares to increase its liquidity and repay debt. The company had also decided to grant the underwriters an option to purchase an additional 1.65 million shares to cover any over-allotments. Aimco intended to utilize about $150 million of the proceeds from the equity offer to redeem all the outstanding shares of its ‘Class T Cumulative Preferred Stock,’ $65 million for redeeming all outstanding shares of its ‘Class V Cumulative Preferred Stock,’ and the balance for redeeming ‘Class Y Cumulative Preferred Stock.’
Aimco expects the secondary offering to result in modest earnings dilution in the recent quarters until the full redemption of preferred stocks, following which FFO is expected to rise steadily.
Consequently, Aimco currently expects FFO for second quarter 2012 in the range of 39 cents to 43 cents – down from its earlier guidance of 40 cents to 44 cents for the quarter. Adjusted FFO (AFFO) for fiscal 2012 is presently expected in the range of $1.24 to $1.34, compared to the earlier expectations of $1.21 to $1.31 per share.
The simultaneous issue of common shares and redemption of preferred stocks is anticipated to reduce the cost of capital and increase annual cash flow by approximately $16 million. The projected debt and preferred equity to EBITDA (earnings before interest, tax, depreciation, and amortization) ratio for fourth quarter 2012 on an annualized basis is currently expected to be 8.2x compared to the earlier projections of 8.7x, while EBITDA coverage of interest and preferred dividends is expected to be 2.15x (up from 2.0x).
With a significant increase in expected earnings, Aimco also intends to raise its dividend payout by approximately 11% from 18 cents to 20 cents per share from second quarter 2012.
One of the largest owners and operators of multifamily apartments in the U.S., Aimco has a diversified portfolio of conventional, affordable and student housing communities. The company has a strong portfolio of Class ‘B’ and Class ‘C’ properties, primarily catering to the middle-income market.
We maintain our long-term Neutral rating on Aimco, which currently has a Zacks #3 Rank that translates into a short-term Hold rating. We also have a Neutral recommendation and a Zacks #3 Rank for Equity Residential (EQR), one of the competitors of Aimco.
APARTMENT INVT (AIV): Free Stock Analysis Report
EQUITY RESIDENT (EQR): Free Stock Analysis Report
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