Apartment Investment and Management Company (AIV) – better known as Aimco – reported fourth-quarter 2014 pro forma funds from operations (“FFO”) of 54 cents per share, missing the Zacks Consensus Estimate by a penny and the year-ago quarter figure by 3 cents. The bottom line came within Aimco’s guided range of 53–57 cents.
Improving operating portfolio performance, enhanced contribution from redevelopment communities and lower interest expenses helped the pro forma FFO. However, lower interest income and stalled average occupancy rate acted as headwinds.
For the reported quarter, total revenue came in at $242.2 million, almost in line with the Zacks Consensus Estimate, but missed the prior-year quarter figure by 3.5%.
For 2014, Aimco reported 2014 pro forma FFO of $2.07 per share, missing the Zacks Consensus Estimate by a penny. However, it came in 3 cents higher than the 2013 figure.
Total revenue for 2014 was $984.4 million, beating the Zacks Consensus Estimate of $955 million and the prior-year figure of $974.1 million.
Quarter in Details
In the Conventional real estate portfolio, same-store revenues increased 4.4% year over year to $166.1 million, while expenses rose 0.6% year over year to $50.9 million. Consequently, same-store NOI climbed 6.1% to $115.2 million on a year-over-year basis.
Same-store average daily occupancy remained unchanged at 95.6%. Rental rates on new and renewals leases were up 0.9% and 4.9%, 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 324-apartment home community – Saybrook Pointe Apartment Homes – in San Jose, CA for $118.4 million; a 78-apartment home community – Tremont Apartment Homes – in Atlanta, GA for $25 million and a 140-apartment home community – Eastpointe Apartment Homes – in Boulder, CO for $18 million.
Also, during the quarter, Aimco acquired 2.4 acres in La Jolla, CA for multi-family and mixed-use purposes. On the other hand, the company divested two Affordable Apartment Communities and two conventional Apartment Communities for gross proceeds of $79.5 million.
Additionally, the company spent $15.1 million for development of One Canal Street in Boston and $35.5 million in redevelopment projects.
As of Dec 31, 2014, Aimco had cash and restricted cash on hand of $120.4 million, as compared to $192.1 million as of Sep 30, 2014. Moreover, there were 15 unencumbered properties, with an estimated fair value of more than $1 billion.
Further, as of that date, Aimco had outstanding borrowings of $112.3 million on its revolving credit facility, while available capacity was $445.9 million, net of $41.8 million of letters of credit backed by the revolver.
2015 Outlook Provided
For 2015, Aimco provided pro forma FFO guidance in the range of $2.12–$2.22. The Zacks Consensus Estimate of $2.21 per share falls within the guided range. For 2015, the company expects NOI change in the range of 4–5.5% compared with the prior year. Further, for full year 2015, it expects redevelopment and development activities to range between $120–$130 million and $90–$100 million, respectively.
For first-quarter 2015, Aimco provided pro forma FFO guidance in the range of 48–52 cents. The Zacks Consensus Estimate of 52 cents per share falls within the projected range. For first-quarter 2015, the company expects NOI change to come within 4.25–5.25% compared with the prior-year quarter.
Dividend Hike
Aimco recently declared a quarterly cash dividend of 28 cents per share of Class A Common Stock for four-quarter 2014. This marks an 8% increase from the dividends paid in 2014. It will be paid on Feb 27, 2015 to stockholders of record on Feb 13.
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 high-growth potential markets. Also, rise in demand for apartment properties driven by ‘echo boomers’ – children of the baby boomer generation – promises growth prospects.
However, lower average daily occupancy growth remains a cause of concern for the company. Moreover, although the divestitures will pay in the long run, their near-term adverse effect on earnings of this Zacks Rank #4 (Sell) stock cannot be avoided.
Investors interested in apartment REITs may consider stocks like Equity LifeStyle Properties, Inc. (ELS), Equity Residential (EQR) and Post Properties Inc. (PPS). All these 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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