Apartment Investment and Management Company (AIV) – better known as Aimco – reported third-quarter 2014 pro forma funds from operations (FFO) of 51 cents per share, in line with the Zacks Consensus Estimate and a penny above the year-ago quarter figure. Also, this came within Aimco’s guided range of 48–52 cents.
Improving operating portfolio performance, enhanced contribution from redevelopment communities and lower interest expenses and offsite costs drove the year-over-year rise in pro forma FFO per share. However, early debt payments’ prepayment charges, lower interest income, higher casualty losses and loss of income due to assets divestiture acted as the headwind. Aimco narrowed its 2014 pro forma FFO per share guidance range.
Total revenue was $246.8 million, up 1.2% year over year and surpassed the Zacks Consensus Estimate of $237 million.
Quarter in Details
In the Conventional real estate portfolio, same-store revenues increased 4.4% year over year to $168.0 million while expenses rose 4.5% year over year to $55.7 million. Consequently, same-store net operating income (NOI) climbed 4.4% to $112.3 million on a year-over-year basis.
Notably, same-store average daily occupancy was up 20 basis points (bps) year over year to 95.7%. Rental rates on new and renewals leases were up 6.4% and 5.6%, respectively, from the expiring lease rates.
As planned, Aimco continues to sell the lowest rated 5%–10% of its portfolio each year and use the reaped amount for acquisition and redevelopment of assets with brighter prospects. Accordingly, the company acquired a 600-apartment home property – 21 Fitzsimons Apartment Homes – in Aurora, CO for $118.5 million. Given the property’s proximity to Denver, it will increase Aimco’s exposure to the region.
Additionally, the company spent $14.6 million for development of its Boston-based apartment community and $41 million in redevelopments in the quarter. On the other hand, Aimco divested 15 Conventional Apartment Communities for $362.6 million in gross proceeds (of which, including distributions to limited partners, repayment of existing property debt and transaction costs, the company’s share was $215.4 million).
As of Sep 30, 2014, Aimco had cash and restricted cash on hand of $192.1 million, as compared to $253.8 million as of Jun 30, 2014. Moreover, there were 13 unencumbered properties, with an estimated fair value of around $750 million.
Furthermore, as of that date, Aimco had outstanding borrowings of $14.5 million on its revolving credit facility, while available capacity was $543.1 million, net of $42.4 million of letters of credit backed by the revolver.
2014 Outlook Narrowed
For 2014, Aimco narrowed its pro forma FFO guidance to the range of $2.06 to $2.10, from the previous range of $2.04 to $2.12 per share. The Zacks Consensus Estimate of $2.08 per share falls within the new guidance range.
For fourth-quarter 2014, the company expects pro forma FFO per share in the range of 53–57 cents. The Zacks Consensus Estimate of 54 cents lies within this range.
In Conclusion
Aimco’s portfolio enhancement activity through continued property sales 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 markets with high-growth potential. Also, the rise in demand for apartment properties driven by ‘echo boomers’ – children of the baby boomer generation – promises growth prospects. Yet, although the divestitures hold good for the long run, the adverse effect on earnings of this Zacks Rank #3 (Hold) stock in the near term cannot be avoided.
Investors interested in apartment REITs may consider stocks like UDR Inc. (UDR), Post Properties Inc. (PPS) and Equity Residential (EQR). All stocks carry 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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