Aimco Q2 FFO & Revenues Beat, Ups Lower End of 2014 Guidance

Zacks

Apartment Investment and Management Company (AIV) – better known as Aimco – reported second-quarter 2014 pro forma funds from operations (:FFO) of 52 cents per share, a penny ahead of the Zacks Consensus Estimate and 3 cents above the year-ago quarter figure. Also, this came in line with the higher end of Aimco’s guided range of 48–52 cents.

Improved operating portfolio performance, contribution from redevelopment communities and lower offsite costs drove the 6.1% year-over-year rise in pro forma FFO per share. However, loss of income due to assets divestiture acted as the headwind. Nevertheless, Aimco increased the lower end of its 2014 pro forma FFO per share guidance range.

Total revenue was $246.4 million, up 1.9% year over year and surpassed the Zacks Consensus Estimate of $232 million.

Quarter in Details

In the Conventional real estate portfolio, same-store revenues increased 4.1% year over year to $176.9 million while expenses rose 0.7% year over year to $58.8 million. Consequently, same-store net operating income (:NOI) climbed 5.9% to $118.1 million on a year-over-year basis.

Notably, same-store average daily occupancy was up 40 basis points (bps) year over year to 96.0%. Rental rates on new and renewals leases were up 4.7% and 5.0%, 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 premium assets. Accordingly, the company sold 4 Conventional Properties and 2 Affordable Properties and reaped $156.6 million as gross proceeds. Of this, Aimco’s net share (after distributions to limited partners, repayment of transaction costs and existing property debt) was $120.5 million. Also, in the quarter, Aimco divested its partnership stake in nine Affordable assets.

Additionally, the company spent $8.2 million for development of its Boston-based apartment community and $54.4 million in redevelopments in the quarter.

As of Jun 30, 2014, Aimco had cash and restricted cash on hand of $253.8 million, up from $195.4 million as of Mar 31, 2014. Moreover, there were 10 unencumbered properties, with an estimated fair value of around $570.0 million.

Furthermore, as of that date, Aimco had outstanding borrowings of $53.4 million on its revolving credit facility, while available capacity was $502.1 million, net of $44.5 million of letters of credit backed by the revolver.

Outlook

For 2014, Aimco increased the lower end of its pro forma FFO guidance to the range of $2.04 to $2.12, from the previous range of $2.02 to $2.12 per share. The Zacks Consensus Estimate of $2.07 per share falls within the new guidance range.

For third-quarter 2014, the company expects pro forma FFO per share in the range of 48–52 cents. The Zacks Consensus Estimate of 52 cents lies within this range.

In Conclusion

Aimco’s portfolio enhancement activity through continued developments, redevelopments of core assets and disposal of non-core assets, continue to strengthen its position in markets with high-growth potential. Particularly, the company projects its redevelopment projects, upon stabilization, to add around $1.50 to Net Asset Value per share in the next two years. Also, the guidance raise boosts investor’s confidence in the stock. Yet, although the divestitures hold good for long run, the adverse effect on earnings in the near term cannot be avoided.

Investors interested in apartment REITs may consider stocks like UDR Inc. (UDR), Equity LifeStyle Properties, Inc. (ELS) and Avalonbay Communities Inc. (AVB). 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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