AIMCO: A Balanced View - Analyst Blog

On Jun 2, 2014, we issued an updated research report on the residential real estate investment trust (REIT) – Apartment Investment and Management Company AIV – better known as Aimco.

Aimco's first quarter 2014 pro forma funds from operations (FFO) of 50 cents per share came a penny ahead of the Zacks Consensus Estimate and 2 cents above the year-ago quarter figure. 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.

Going forward, Aimco's strong portfolio of B/B+ geographically diversified assets and the expected rise in demand for apartment properties driven by ‘echo boomers' position it well for growth. Additionally, the company's current focus on lowest-rated portfolio divestitures and reinvesting the proceeds in select apartment homes with higher rents, superior margins and greater-than-expected growth is a strategic fit for strengthening its overall portfolio quality.

Yet, we expect an adverse impact on earnings in the near term from these asset dispositions. Moreover, an upfront increase in estimated cost of redevelopment projects and decreased NOI assumptions from these can weigh upon the 2014 earnings. In addition, a rise in interest rates is anticipated in the long run, may raise the company's interest expense and thus remains a concern.

Over the last 30 days, the Zacks Consensus Estimate for 2014 and 2015 FFO per share declined by a cent and 3 cents to $2.06 and $2.21, respectively. The stock currently has a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Better-ranked residential REITs include Spirit Realty Capital, Inc. SRC, Equity LifeStyle Properties, Inc. ELS and Education Realty Trust, Inc. EDR. Spirit Realty carries a Zacks Rank #1 (Strong Buy) while Equity LifeStyle and Education Realty have a Zacks Rank #2 (Buy).

Note: 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.