Aimco Q4 FFO Beats by a Penny

Apartment Investment and Management Company (AIV) – better known as Aimco – reported pro forma funds from operations (:FFO) of 57 cents per share in fourth-quarter 2013, a penny ahead of the Zacks Consensus Estimate and 5 cents ahead of the year-ago quarter figure.

Improved property operating results and lower offsite costs drove the year-over-year rise in pro forma FFO. However, the results were partly dwarfed by higher interest expense and lower income from discontinued operations.

Total revenue was $250.9 million, up 1.3% year over year, and surpassed the Zacks Consensus Estimate of $243 million.

For full-year 2013, the company reported pro forma FFO of $2.04 per share on revenues of $974.1 million. This was higher than pro forma FFO of $1.84 per share on revenues of $958.5 million, which the company reported in the prior-year.

Quarter in Detail

In the Conventional real estate portfolio, which includes a diversified range of market-rate apartment communities, the same-store average daily occupancy was 95.5%, up 20 basis points (bps) year over year and average rent per unit increased 3.0% year over year to $1,287.

Furthermore, average revenue per unit in the same-store portfolio upped 3.5% year over year to $1,441. Rental rates on new leases were down 0.6% while on renewals the rates were up 4.6% from the expiring lease rates.

Same-store revenues increased 3.8% year over year to $181.2 million while expenses rose 0.8% year over year to $59.1 million. Consequently, same-store net operating income (:NOI) climbed 5.2% to $122.1 million on a year-over-year basis.

Portfolio Activities in Q4

Aimco is revamping its portfolio through property sales and reinvesting the proceeds in fewer apartment homes with higher rents, superior margins and greater-than-expected growth. Consequently, the company continues to sell the lowest rated 5%–10% of its portfolio each year and intends to completely sell off its affordable portfolio within the next 4 to 5 years.

During fourth-quarter 2013, Aimco sold 11 Conventional Properties and 5 Affordable Properties and reaped $333.8 million as gross proceeds. Of this Aimco’s share was $142.8 million.

The property count in the Affordable portfolio came to 74 at the end of fourth-quarter 2013 from 228 properties three years ago. Aimco continued with its redevelopment and development work in its properties and full year investments for these properties totaled $194 million.

Liquidity

As of Dec 31, 2013, Aimco had cash and restricted cash on hand of $167.5 million. Moreover, there were 7 unencumbered properties, with an estimated fair value of around $380 million.

Furthermore, as of that date, Aimco had outstanding borrowings of $50.4 million on its revolving credit facility, while available capacity was $505.0 million, net of $44.6 million of letters of credit backed by the revolver.

Dividend

Recently, Aimco announced an 8.3% hike in its quarterly dividend rate. The company will now pay a dividend of 26 cents per share of Class A Common Stock for fourth-quarter 2013, compared with 24 cents paid in the prior quarter. The increased dividend will be paid on Feb 28, 2014 to stockholders of record on Feb 14.

Outlook

For first-quarter 2014, Aimco expects pro forma FFO per share in the range of 46–50 cents. This is lower than the Zacks Consensus Estimate of 51 cents per share.

For full-year 2014, the company expects pro forma FFO in the range of $2.00 to $2.10 per share. This reflects a slight uptick from $2.04 per share in 2013. However, this range is also below the Zacks Consensus Estimate of $2.18 per share.

Aimco expects 2014 Conventional Same Store revenues to increase 3% to 4% compared to 2013. The company expects the solid California markets to contribute around 25% of total revenues in 2014 and 30% in 2015. Further, the company projects a decline in interest expense and offsite cost.

Our Take

Aimco’s portfolio enhancement activity through continued acquisitions, redevelopments of core assets and disposal of non-core assets, continue to strengthen its position in markets with high-growth potential. The dividend hike further boosts investor’s confidence in the stock.

However, stiff competition from other housing alternatives and rise in interest rates in the long term remain our concerns. Moreover, the increase in supply in the Sunbelt regions is anticipated to partly offset the overall growth in rents.

Aimco currently has a Zacks Rank #3 (Hold). Investors interested in REIT industry may consider stocks like BRE Properties Inc. (BRE), Education Realty Trust, Inc. (EDR) 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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