Apartment Investment and Management Company (AIV - Free Report) — better known as Aimco — has been actively revamping its portfolio by shedding non-strategic properties and reinvesting the proceeds in desired markets. This has helped the company record decent growth in the last quarter despite new supply in the primary markets.
In fact, the company revised its third-quarter 2017 pro forma funds from operation (FFO) per share guidance upward. Further, the Zacks Consensus Estimate for third-quarter 2017 has inched up 1.6% to 62 cents in a month’s time.
Aimco has been enhancing its portfolio through opportunistic acquisitions in core operating markets. It is concentrating on select apartment homes which can provide higher rents, superior margins and higher-than-expected growth. Specifically, the company increased ownership in A class homes, decreasing its B and C+ apartment holdings.
Recently, Aimco shelled out $451.5 million for the complete ownership of three Palazzo communities. This transaction is anticipated to improve the average age of portfolio holdings, internal rate of return and average monthly revenues per apartment home.
In addition, the company aims to sell around 10% of its total apartment communities in its portfolio, in order to enhance portfolio quality and achieve a favorable mix of portfolio holding. It carries out the dispositions through leverage neutral pair trades.
Further, Aimco has a solid portfolio, diversified both in terms of geography and price point. This should help the company meet the rise in demand for apartment properties from echo boomers — children of the baby boomer generation. This diversification cushions the company’s performance despite new supply in various markets.
Although demand for residential properties is expected to shoot up in the upcoming quarters, increasing construction activity leading to new supply remains a major concern. The company suffered a slowdown in rent growth in Los Angeles, Denver and Boston markets due to competition from new supply. This rise in supply is expected to put pressure on new lease pricing at the high price point.
Moreover, disposition of assets will limit the company’s bottom-line growth, as sell-offs result in earnings dilution in the short term.
Looking at its price performance, the stock has lost 1.1% year to date, versus the industry’s 4.7% growth.
Aimco currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks in the REIT space are Equity LifeStyle Properties, Inc. (ELS - Free Report) , Independence Realty Trust, Inc. (IRT - Free Report) and Seritage Growth Properties . All three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Equity LifeStyle’s 2017 FFO per share estimates moved up 0.3% to $3.59 over the past 60 days.
Independence Realty’s 2017 FFO per share estimates climbed 1.4% to 75 cents in a month’s time.
Seritage’s 2017 FFO per share estimates inched up 0.5% to $2.01 during the same time frame.
Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. 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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