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Apartment Investment and Management Company (AIV), popularly known as Aimco, reported third quarter 2011 funds from operations (FFO) of $43.6 million or 36 cents per share compared with $48.9 million or 42 cents per share in the year-ago period.
Funds 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.
We cover below the results of the recent earnings announcement, as well as the subsequent analysts’ estimate revisions and the Zacks ratings for the short and long-term outlook on the stock.
Third Quarter Review
During the quarter, total revenue was $281.4 million compared with $273.2 million in the year-ago period. Total revenue in the reported quarter was ahead of the Zacks Consensus Estimate of $267 million. Total same-store net operating income (NOI) spiked 3.8% year over year.
In the conventional real estate portfolio, Aimco had a weighted average ownership of 94%. Average rents in the same-store conventional real estate portfolio were up 3.1% during the quarter to $1,094 per unit from $1,061 per unit in the year-ago quarter.
Aimco expects recurring FFO for full-year 2011 in the range of $1.46 - $1.50 per share, while the same for fourth quarter 2011 is expected in the range of 39 cents to 43 cents per share.
Read our full coverage on this earnings report: Aimco Beats by a Penny
Earnings Estimate Revisions - Overview
The company’s earnings estimates for fiscal 2011 have moved downwards since the third quarter earnings release, implying that the analysts are negative about the current fiscal performance of the company. Let’s dig into the earnings estimate in details.
Agreement of Estimate Revisions
In the last 7 days, none of the analysts covering the stock increased their earnings estimates for the upcoming quarter and for fiscal 2011. In the last 7 days, 7 out of the 15 analysts covering the stock trimmed their earnings estimates for the upcoming quarter and 9 out of 13 decreased the same for fiscal 2011. This indicates downward earnings movement for fiscal 2011.
Magnitude of Estimate Revisions
Earnings estimates for the upcoming quarter has decreased from 42 to at 41 cents per share over the last 7 days and $1.49 per share to $1.44 per share for fiscal 2011, which indicates that the analysts are negative about the fiscal earnings.
Aimco is one of the largest owners and operators of multi-family apartments in the U.S., with a diversified portfolio of conventional, affordable and student housing communities. The company has a strong portfolio of Class ‘B’ and Class ‘C’ properties primarily catering to the middle-income market. In addition, Aimco rents and leases its apartment units to a diverse base of residents. This provides a strong upside potential for the company.
Aimco continues to sell older assets to reposition its portfolio and focus on fewer markets with higher growth potential. Furthermore, the company is focusing on redevelopments to mitigate operating risk amid challenging macroeconomic environment.
However, Aimco competes with other housing alternatives such as rental apartments, condominiums and single-family homes that are available for rent, and new and existing condominiums and single-family homes available for sale. This puts considerable pressure on maintaining its profitability through stringent cost-cutting measures.
Aimco currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock. One of its competitors, Equity Residential. (EQR - Analyst Report) also holds a Zacks #3 Rank.