Aimco FFO & Revs Beat, Ups 2014 View - Analyst Blog

Apartment Investment and Management Company AIV – better known as Aimco – reported first-quarter 2014 pro forma funds from operations (FFO) of 50 cents per share, a penny ahead of the Zacks Consensus Estimate and 2 cents above the year-ago quarter figure. Also, this came in line with the higher end of Aimco's guided range of 46–50 cents.

Strong operating portfolio performance, lower offsite costs and interest expense drove the year-over-year rise in pro forma FFO per share. However, high casualty losses tied to cold winters, low interest income and assets divestiture acted as the headwinds. Nevertheless, Aimco increased its 2014 pro forma FFO per share guidance range.

Total revenue was $248.9 million, up 4.8% year over year and surpassed the Zacks Consensus Estimate of $244 million.

Quarter in Details

In the Conventional real estate portfolio, same-store revenues increased 4.6% year over year to $174.9 million while expenses rose 2.8% year over year to $59.7 million. Consequently, same-store net operating income (NOI) climbed 5.6% to $115.2 million on a year-over-year basis.

Notably, same-store average daily occupancy was up 30 basis points (bps) year over year to 95.7%. Rental rates on new and renewals leases were up 1.0% and 4.9%, respectively, from the expiring lease rates.

As planned, Aimco continues to sell the lowest rated 5%–10% of its portfolio each year. Accordingly, the company sold 3 Conventional Properties and 2 Affordable Properties and reaped $136.9 million as gross proceeds. Of this Aimco's net share (after distributions to limited partners, repayment of transaction costs and existing property debt) was $53.5 million.

Additionally, Aimco completed redevelopment of 6 apartment communities in California for an investment of $48.4 million. Also, the company invested $9.0 million in the development of a Boston-based asset and continued with redevelopment and development work at its several other properties.

Liquidity

As of Mar 31, 2014, Aimco had cash and restricted cash on hand of $195.4 million, up from $167.5 at the end of 2013. Moreover, there were 8 unencumbered properties, with an estimated fair value of around $410.0 million.

Furthermore, as of that date, Aimco had outstanding borrowings of $110.1 million on its revolving credit facility, while available capacity was $445.4 million, net of $44.5 million of letters of credit backed by the revolver.

Full-year Outlook Raised

For 2014, Aimco increased its pro forma FFO guidance to the range of $2.02 to $2.12, from the previous range of $2.00 to $2.10 per share. The Zacks Consensus Estimate of $2.07 per share falls within the new guidance range.

For second-quarter 2014, the company expects pro forma FFO per share in the range of 48–52 cents. The Zacks Consensus Estimate of 51 cents lies within this range.

In Conclusion

Though the company continues to sell non-core assets and buy property in higher growth infill areas, we expect asset dispositions to have an adverse effect on earnings in the near term too. Apart from this, while Aimco is focusing on improving its balance sheet, we notice that the leverage level is still high. This lowers its financial flexibility and impedes the growth momentum of this Zacks Rank #4 (Sell) stock to some extent.

Nevertheless, we believe that the continued redevelopment and developments efforts are poised to strengthen its position in vibrant markets. 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.

Investors interested in apartment REITs may consider stocks like UDR Inc. UDR, Equity LifeStyle Properties, Inc. ELS and Preferred Apartment Communities, Inc. APTS. 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.