Aimco (AIV) Q3 FFO Beats Estimates On Robust NOI Growth

Apartment Investment and Management Company (NYSE:AIV) — better known as Aimco — reported third-quarter 2017 pro forma funds from operations (FFO) of 63 cents per share, beating the Zacks Consensus Estimate by a cent. The figure also indicates a 14.5% increase from the year-ago quarter tally of 55 cents.

Results display growth in property net operating income (NOI) supported by same-store properties, and lease-up of redevelopment and acquisition communities. The company also benefited from reduced overhead costs. However, this positive was partially offset by the loss of income from apartment sales in 2016.

Total revenues of $254.6 million comfortably outpaced the Zacks Consensus Estimate of $249.2 million. In addition, the reported figure came in 2.3% higher than the prior-year quarter tally of $248.9 million.

Quarter in Detail

Same-store revenues increased 2.8% year over year to $148.2 million, while expenses edged down 1.1% year over year to $42.3 million. Consequently, same-store net operating income (NOI) climbed 4.5% to $105.9 million on a year-over-year basis.

Same-store average daily occupancy expanded 20 basis point (bps) year over year to 96.0%. Rental rates on new leases were up 1.4% and on renewals were up 4.5% from the expiring lease rates.

As of Sep 30, 2017, Aimco held cash and restricted cash on hand of $86 million. Moreover, the estimated fair market value of the company’s unencumbered apartment communities came in at around $1.8 billion, marking denoting an increase of about 12% from the beginning of the year.

Further, at the end of the quarter, Aimco’s outstanding borrowings on its revolving credit facility were $356 million and available capacity was $232 million, after considering $12 million of letters of credit backed by the facility.

Portfolio Activity

During the reported quarter, Aimco invested $33 million in redevelopment and development.

In addition, Aimco is revamping its portfolio through property sales and reinvesting the proceeds in select apartment homes with higher rents, superior margins and higher-than-expected growth.

Through these efforts, the company increased its revenue per apartment home by 6% to $2,075. Additionally, it enhanced the quality and expected growth rate of its portfolio. Specifically, the percentage of A, B and C+ home came in at 53%, 34% and 13% in third-quarter 2017 compared with 51%, 37% and 12%, respectively, recorded in the year-ago quarter.

Guidance

For fourth-quarter 2017, Aimco provided pro forma FFO per share guidance in the band of 60- 64 cents. The Zacks Consensus Estimate for the same is 63 cents.

For full-year 2017, the company narrowed its pro forma FFO per share guidance to $2.42-$2.46 from $2.40-$2.48 provided earlier. The Zacks Consensus Estimate for the same is $2.44.
The company’s full-year guidance is backed by same-store revenue growth assumptions of 3.10-3.50% and NOI increase of 4.00-4.50%.

Dividend

On Oct 25, Aimco announced a quarterly cash dividend of 36 cents per share of Class A Common Stock for the third quarter. This marks a 9% year-over-year increase. The dividend will be paid on Nov 30 to stockholders of record as of Nov 17, 2017.

Bottom Line

Aimco’s efforts to reposition its portfolio by shedding non-strategic properties and investing the proceeds in opportunistic acquisitions will likely drive long-term growth. In addition to this, the company has a solid portfolio diversified both in terms of geography and price point. This is likely to help it meet the rise in demand for apartment properties efficiently.

However, stiff competition from new supply in various markets is expected to dampen Aimco’s rent growth and new lease pricing ability. Additionally, interest rate hike and dilutive effects of sale of assets remain concerns.

Aimco currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The stock has lost 4.7% year to date, as against 4.5% growth recorded by the industry it belongs to.

We now look forward to the earnings releases of other residential REITs like AvalonBay Communities, Inc. (NYSE:AVB) , UDR Inc. (NYSE:UDR) and Essex Property Trust Inc. (NYSE:ESS) . While both AvalonBay and UDR are scheduled to release results on Oct 30, while Essex Property is slated to report its numbers on Nov 1.

Note: All EPS numbers presented in this write up represent funds from operations (FFO) per share. 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.

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