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Aimco Stays Neutral

by Zacks Equity Research

August 16, 2012 | Comments : 0 Recommended this article: (0)

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We have reiterated our Neutral recommendation on Apartment Investment & Management Co ( AIV - Analyst Report ) ), or Aimco, a Real Estate Investment Trust (REIT) as we expect the stock to perform in line with the broader market.

The company 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.

Aimco is one of the largest owners and operators of multifamily 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 focused on redevelopments to mitigate operating risk amidst a challenging macroeconomic environment.

The company’s properties are geographically diversified compared to several of its competitors, which helps to limit the effect of a single significant local downturn. The company is also ensured of a relatively stable revenue stream, which augurs well for its long-term growth.

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 profit maintenance.

Aimco currently retains a Zacks #2 Rank, which translates into a short-term Buy rating.. One of its competitors, Equity Residential ( EQR - Analyst Report ) also currently retains a Zacks #2 Rank.

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

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