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Aimco (AIV) Closes Redwood City's Luxury Apartment Buyout

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Apartment Investment and Management Company (AIV - Free Report) , commonly known as Aimco, disclosed the acquisition of Indigo in Redwood City, CA. The move comes as part of the company’s portfolio revamping strategy.

Aimco met the funding of this $320 million acquisition with §1031 like-kind exchange proceeds generated from asset sales done earlier this year.

Currently 27% leased, this ten-story luxury community’s takeover is a strategic fit for Aimco. Its position within downtown Redwood City is around 25 miles southeast of San Francisco and on the northern edge of Silicon Valley. The property enjoys good accessibility. Moreover, with the downtown Redwood City serving as a hub for the adjoining residential population together with a thriving community of tech-related jobs, this property is expected to enjoy decent demand.

Notably, Aimco is revamping its portfolio through lowest-rated portfolio dispositions and reinvesting the proceeds in select apartment homes with higher rents, superior margins and greater-than-expected growth.

Through these measures, the company increased its conventional portfolio (market-rate apartment communities) percentage net operating income (NOI) in target markets to 91% in second-quarter 2016 from 89% a year earlier. Moreover, revenue per apartment home improved 8% year over year to $1,900 from $1,759 a year ago.

Going forward, Aimco’s solid portfolio, which is diversified both in terms of geography and price point, is expected to help it enjoy relatively stable revenues despite new supply in various markets. Further, portfolio revamping efforts are expected to help the company improve its overall asset quality and achieve a favorable mix. Yet, even if the divestitures pay off in the long run, its near-term adverse effects on earnings cannot be ignored while stiff competition poses challenge.

Aimco currently has a Zacks Rank #3 (Hold). Investors interested in the residential REIT industry may consider stocks like Select Income REIT , Silver Bay Realty Trust Corp. and Sun Communities Inc. (SUI - Free Report) . Each of these stocks holds a Zacks Rank #2 (Buy).

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