Apartment Investment and Management Company AIV – better known as Aimco – reported first-quarter 2015 funds from operations (“FFO”) of 51 cents per share, a cent up from the year-ago quarter figure.
The company’s pro forma FFO per share came in at 52 cents per share, which scaled the higher-end of the company’s guidance and came 2 cents ahead of the prior-year quarter tally. The Zacks Consensus Estimate for the quarter was pegged at 51 cents.
The year-over-year improvement reflects growth in property net operating income and higher-than-expected transaction income, partly marred by casualty losses associated with the severe weather, loss of income from asset dispositions and prepayment penalties in the quarter. The company has also raised its guidance range.
For the reported quarter, total revenue came in at $244.3 million, ahead of the Zacks Consensus Estimate of $234 million, but missing the prior-year quarter figure by 1.9%.
Quarter in Details
In the Conventional real estate portfolio, same-store revenues increased 4.4% year over year to $172.1 million, while expenses rose 2.9% year over year to $57.3 million. Consequently, same-store NOI climbed 5.2% to $114.8 million on a year-over-year basis.
Same-store average daily occupancy inched up 10 basis points to 95.9%. Rental rates on new and renewals leases were up 1.2% and 4.8%, respectively, from the expiring lease rates.
As of Mar 31, 2015, Aimco had cash and restricted cash on hand of $249.4 million, compared with $118.3 million as of Dec 31, 2014. Moreover, there were 20 unencumbered apartment communities, with an estimated fair market value of around $1.3 billion.
Further, as of that date, Aimco had no outstanding borrowings on its revolving credit facility and an available capacity of $562.1 million, net of $37.9 million of letters of credit backed by the facility.
Portfolio Activity
As intended, Aimco continues to sell the lowest rated 5–10% of its portfolio each year and use the reaped amount for acquisition and redevelopment of higher quality apartment.
Accordingly, from Dec 31, 2011 to Mar 31, 2015, Aimco has increased its period-end Conventional portfolio average revenue per apartment home by 35% to $1,704 and enhanced its Conventional portfolio free cash flow margin by 10%.
Moreover, the company raised the percentage of its portfolio represented by "A" quality properties by 49% and lowered the percentage of its portfolio represented by "C" quality properties by 83%. Finally, the company boosted the percentage of its Conventional Property NOI earned in target markets to 90%.
In the first quarter, Aimco acquired $38.3 million worth Mezzo Apartment Homes, in Atlanta, GA. Moreover, the company sold 4 Conventional Apartment Communities and 2 Affordable Apartment Communities respectively for $147.8 million in gross proceeds.
2015 Outlook Raised
For 2015, Aimco has raised its pro forma FFO per share guidance in the range of $2.14–$2.24 from $2.12–$2.22 guided earlier. The new guidance is backed by conventional same store NOI growth of 4.50–5.50% as against 4.00–5.50% predicted before. The Zacks Consensus Estimate of $2.19 per share falls in the guided range.
For second-quarter 2015, Aimco provided pro forma FFO per share guidance in the range of 51–55 cents. The company expects conventional same store NOI change to come within 4.25–5.25% compared with the prior-year quarter. The Zacks Consensus Estimate of 54 cents per share falls in the projected range.
Dividend Hike
Aimco previously disclosed a quarterly cash dividend of 30 cents per share of Class A Common Stock for first-quarter 2015. The dividend, marking a 15% increase from the prior-year quarter dividend, will be paid on May 29, 2015 to stockholders of record on May 15.
In 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 high-growth potential markets. A hike in dividend also boosts investors’ confidence in the stock.
However, although the divestitures will be profitable in the long run, the related near-term dilutive impact on this Zacks Rank #3 (Hold) stock’s earnings cannot be avoided.
Investors interested in apartment REITs may consider stocks like Equity LifeStyle Properties, Inc. ELS, Post Properties Inc. PPS and UDR Inc. UDR. 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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