Aimco (AIV) Q2 FFO Beats Estimates, Outlook Raised

Apartment Investment and Management Company (NYSE:AIV) – better known as Aimco – reported second-quarter 2016 pro forma funds from operations (“FFO”) of 59 cents per share, beating the Zacks Consensus Estimate of 57 cents and up 5% from the year-ago tally of 56 cents.

Improving operating portfolio performance, enhanced contribution from redevelopment & acquisition communities and higher non-core earnings supported the pro forma FFO per share. However, loss of income from apartment sales in 2015 adversely affected the bottom line.

For the reported quarter, total revenue came in at $251.2 million, beating the Zacks Consensus Estimate of $243.3 million, and exceeding the prior-year figure by 2.6%.

Quarter in Detail

In the Conventional real estate portfolio, same-store revenues increased 4.2% year over year to $168.5 million, while expenses rose 4.6% year over year to $52.9 million. Consequently, same-store net operating income (NOI) climbed 4.1% to $115.6 million on a year-over-year basis.

However, same-store average daily occupancy contracted 50 basis points year over year to 95.9%. Rental rates on new and renewals leases were up 4.4% and 6.2%, respectively, from the expiring lease rates.

Further, increasing contribution from Aimco’s redevelopment apartment communities helped increase conventional non-same store NOI by 13.4%.

As of Jun 30, 2016, Aimco held cash and restricted cash on hand of $430.3 million ($428.0 million Aimco share). Moreover, the estimated fair market value of the company’s unencumbered apartment communities stood at $1.7 billion.

Further, at the end of the quarter, Aimco’s outstanding borrowings on its revolving credit facility were $160.5 million and available capacity was $410.0 million after considering $29.5 million of letters of credit backed by the facility.

Portfolio Activity

During the quarter, Aimco invested $43 million in redevelopment. Of this, $31 million was associated with the redevelopment of Park Towne Place and The Sterling, mixed-use communities in Center City Philadelphia. Additionally, the company invested $13.2 million in the substantial completion of One Canal in Boston.

As intended, Aimco continues to sell 5–10% of its lowest rated portfolio each year and uses the proceeds for acquisition and redevelopment of higher-quality apartments. Through these measures, the company increased its conventional percentage NOI in target markets to 91% in second quarter 2016 from 89% a year earlier. Moreover, revenue per apartment home improved 8% year over year to $1,900 from $1,759 a year ago.

Guidance

For 2016, Aimco raised pro forma FFO per share guidance range to $2.26–$2.34 from the previous range of $2.24–$2.34. The Zacks Consensus Estimate of $2.31 per share falls within the guided range.

For third-quarter 2016, Aimco provided pro forma FFO guidance in a band of 52–56 cents per share. The Zacks Consensus Estimate of 57 cents lies above this range.

Dividend

Concurrent with its earnings release, Aimco declared a quarterly cash dividend of 33 cents per share of Class A Common Stock for second-quarter 2016. The dividend will be paid on Aug 31, 2016 to stockholders of record on Aug 19.

In Conclusion

Aimco has solid portfolio that is diversified both in terms of geography and price point. This helps the company to enjoy relatively stable revenues despite new supply in various markets. Moreover, the company’s persistent 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.

Yet, even if the divestitures pay off in the long run, its near-term adverse effects on earnings cannot be ignored. Also, stiff competition poses challenge for Aimco.

Aimco currently has a Zacks Rank #3 (Hold).

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Investors interested in the residential REIT industry may also consider stocks like Armada Hoffler Properties, Inc. (NYSE:AHH) , Avalonbay Communities Inc. (NYSE:AVB) and American Campus Communities, Inc. (NYSE:ACC) . Each of these stocks has a Zacks Rank #2 (Buy).

Note: FFO, 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. All EPS numbers presented in this write up represent FFO per share.