Apartment Investment & Management Co. (AIV - Analyst Report) or Aimco as the real estate investment trust (REIT) is popularly known, reported second quarter 2012 funds from operations (FFO) of 38 cents per share compared to 29 cents in the year-ago period. The strong quarterly earnings were primarily due to higher rents chargeable.
Recurring FFO stood at 46 cents per share, compared to 27 cents in the year-ago period. Recurring FFO for second quarter 2012 was ahead of the Zacks Consensus Estimate by 6 cents.
During the quarter, total revenues stood at $270.9 million compared to $259.4 million in the year-ago period. Total revenues in the reported quarter beat the Zacks consensus estimate of $259 million.
In the conventional same-store real estate portfolio, which includes a diversified range of market rate apartment communities, Aimco had an average daily ownership of 95.5% . Average rents in the same-store conventional real estate portfolio increased 4.5% during the quarter to $1,140 per unit from $1,091 during second quarter 2011.
Rental rates on new leases and renewals in the conventional same-store real estate portfolio were 4.3% and 5.7% higher respectively than the expiring lease rates. Same-store revenues in the conventional portfolio increased 4.6% year over year to $192.2 million, while net operating income (NOI) increased 5.9%.
Conventional portfolio average revenue per unit increased 8.1% on a year- over year to $1,290 in second quarter 2012. Also, Aimco expects fourth quarter 2012 Conventional portfolio revenue per unit to be approximately $1,370, an increase of 9% on a year-over year basis.
In the affordable real estate portfolio, which includes properties with rents that are generally paid (in whole or in part) by a government agency, Aimco had a weighted average ownership of 77% during the quarter. Average occupancy was 98.6% at quarter-end, while average revenue per unit increased 3.4% from $935 to $967. Same-store revenues in the affordable real estate portfolio increased 4.3% year over year, while NOI increased 7.0%.
Aimco is continuing with a strategic focus on the largest markets in the U.S. that are concentrated mostly in the coastal areas and includes the Sun Belt cities, Chicago and Illinois. Going forward, the company expects to sell each year the lowest rated 5.0% -10.0% of its portfolio, and increase its investment in target markets through redevelopment and acquisitions. With the portfolio restructuring initiatives, the company expects its year-end overall average revenue per rental unit to grow at 4% to 5% higher than the annual market rent growth
During the reported quarter, Aimco acquired a 42-unit Manhattan property for $38.9 million. Average revenue per unit was approximately $4,000 for this property. The acquisition was funded partly by using $20.0 million of non-recourse property debt with a 3.95% interest rate and in part by proceeds from the sale of lower-rated properties.
Aimco sold five conventional properties (1,151 units) and 11 affordable properties (1,082 units) during the quarter for $122.4 million worth of total gross proceeds. During the entire course of the current year, Aimco expects to sell over 25 conventional properties and at least 60 affordable properties towards portfolio up gradation.
During the reported quarter, Aimco started with the redevelopment work of Elm Creek, a Chicago property. The company constructed 28 new homes on this vacant land parcel in Chicago.During 2012, Aimco expects to invest $125 to $150 million in redevelopment projects of upto 10 properties.
During the reported quarter and subsequent related equity offerings, Aimco issued 24.2 million shares for net proceeds of $641.7 million.
At quarter-end, Aimco had a total debt of $5.2 billion and cash and cash equivalents of $312.9 million with debt service and fixed charge coverage ratios of 1.61x and 1.38x respectively. By quarter-end, however, Aimco had no outstanding borrowings on its revolving credit facility while available capacity was $473.0 million, net of $27.0 million of letters of credit backed by the facility.
For full year 2012, Aimco expects recurring FFO in the range of $1.78-$1.86 while FFO for third quarter is expected to be in the range of 43 cents to 47 cents.
Aimco currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We also maintain our long-term Neutral recommendation on the stock. One of its competitors, Equity Residential (EQR - Analyst Report) currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.
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.