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Aimco Continues Portfolio Repositioning: Should You Hold?

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On Mar 4, 2016, we issued an updated research report on Apartment Investment & Management Co. (AIV - Free Report) , which is commonly known as Aimco. This Denver, CO-based real estate investment trust (REIT) is engaged in the acquisition, ownership, management and redevelopment of apartment properties situated in some of the major coastal and job-growth markets in the U.S.

Last month, Aimco reported fourth-quarter 2015 pro forma funds from operations (“FFO”) of 58 cents per share, missing the Zacks Consensus Estimate by a penny. However, the figure increased by 4 cents from the year-ago tally.

The improvement reflects solid property net operating income (NOI) and increased contribution from redevelopment and acquisition communities. These were mitigated by the loss of income from apartment communities that were sold in 2014 and 2015.

As intended, Aimco continues to sell 5–10% of its lowest-rated portfolio each year and use the proceeds for the acquisition and redevelopment of higher-quality apartments. Accordingly, during Dec 31, 2011 to Dec 31, 2015, Aimco increased its period-end Conventional portfolio average revenue per apartment home by 46% to $1,840 and enhanced its Conventional portfolio free cash flow margin by 13%. Moreover, the company raised the percentage of its conventional property NOI earned in target markets to 91%.

In Jan 2016, the company revealed a 10% sequential hike in its dividend. Going forward, Aimco’s continued property sales and reinvestment of proceeds in select apartment homes with higher rents and superior margins are expected to strengthen its position in markets with high growth potential. Yet, even if the divestitures pay off in the long run, the near-term adverse effect on earnings cannot be ignored.

Aimco currently carries a Zacks Rank #3 (Hold). Investors interested in the residential REIT industry may consider AvalonBay Communities, Inc. (AVB - Free Report) , Essex Property Trust Inc. (ESS - Free Report) and Mid-America Apartment Communities Inc. (MAA - Free Report) . Each of these stocks holds 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.

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