On Sep 6, 2013, we reiterated our long-term Neutral recommendation on Apartment Investment & Management Co. (AIV), commonly known as Aimco. The decision was based on the company’s diversified portfolio, portfolio enhancement activity and rising apartment industry fundamentals. However, rising interest rates, capital market volatility and stiff competition from other housing alternatives remain matters of concern.
Driven by improved property operating results and lower preferred share dividends, Aimco reported second-quarter 2013 pro forma funds from operations (:FFO) of 49 cents per share, beating the Zacks Consensus Estimate by a penny and the year-ago quarter figure by 3 cents. Moreover, going forward, we believe that the rise in apartment demand generated by ‘echo boomers’ – children of the baby boomer generation – will offer Aimco ample growth opportunities.
Aimco is also focused on spinning off its Affordable portfolio and reinvesting the proceeds to boost its Conventional portfolio. Consequently, the company, through this disciplined capital recycling, has upped its year-end Conventional portfolio average revenue per apartment home at a compound annual growth rate (from 2007–2012) of 6.1%.
However, rising interest rates and the capital market volatility will likely limit Aimco’s ability to refinance existing debt and undertake portfolio-restructuring initiatives, thereby denting the company’s growth prospects.
Moreover, the steady recovery of the housing market and increase in supply in the Sunbelt regions are anticipated to partly impede the overall rent growth in Aimco’s operating regions. Despite attempts to reposition its portfolio in higher growth markets, much of Aimco’s portfolio still remains in areas where housing is relatively cheap. Its significant exposure to the weak Florida market can also affect its top-line growth in the near term.
Over the last 30 days, the Zacks Consensus Estimate for both 2013 and 2014 FFO per share remained stable at $2.04 and $2.19 per share, respectively. Thus, this apartment real estate investment trust (:REIT) now carries a Zacks Rank #3 (Hold).
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Note: FFO, a widely accepted and reported measure of the performance of REITs is derived by adding depreciation, amortization and other non-cash expenses to net income.
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