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Here's Why You Should Hold on to Aimco (AIV) Stock for Now
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Residential REIT Apartment Investment and Management Company (AIV - Free Report) — better known as Aimco — has been making diligent efforts to reposition its portfolio by shedding non-strategic properties and investing the proceeds in opportunistic acquisitions. However, intense competition from new supply in various markets is anticipated to dampen the company’s rent growth and new lease pricing ability.
Aimco reported better-than-expected results for third-quarter 2017, reflecting growth in property net operating income (NOI) supported by same-store properties, and lease-up of redevelopment and acquisition communities. The company also benefited from reduced overhead costs. However, this positive was partially offset by the loss of income from apartment sales in 2016.
Notably, Aimco has a solid portfolio diversified in terms of geography and price point. Moreover, the rise in demand for apartment properties driven by ‘echo boomers’ — children of the baby boomer generation — keeps us positive on the stock. This age cohort, which mainly consists of people less than 35 years of age, prefers to stay on its own. Added to this, due to changing lifestyle, people, on an average, are settling later in life and thereby buying homes late, leading to a rising tendency of living in a rented home.
Further, as renting is the only viable option for customers who cannot avail mortgage loans or are unwilling to buy a house at present, demand for Aimco’s premium properties will likely continue to shoot up in the coming quarters.
Importantly, Aimco is revamping its portfolio through property sales and reinvesting the proceeds in select apartment homes with higher rents, superior margins and higher-than-expected growth. Through these efforts, the company increased its revenue per apartment home by 6% to $2,075 in the third quarter. Additionally, it enhanced the quality and expected growth rate of its portfolio.
Also, Aimco has been well on track to enhance its balance sheet and liquidity position, and bring down leverage. The company is aimed at boosting its financial flexibility by increasing the pool of unencumbered apartment assets.
Nevertheless, even though apartment supply has not yet reached its peak level, the delivery numbers remained elevated in the recently-reported quarter. Particularly, new supply is competing with some of the company’s higher rent properties. This high supply in a number of the company’s markets is a concern because it curtails landlords’ ability to command more rent and result in lesser absorption.
In addition to the above, although Aimco’s effort to sell non-core assets and buy property in higher-growth infill areas is a strategic fit for the long term, the dilutive impact on earnings from such asset dispositions cannot be avoided.
Better-ranked stocks in the REIT space include Franklin Street Properties (FSP - Free Report) , Columbia Property Trust and MedEquities Realty Trust (MRT - Free Report) . All three carry a Zacks Rank of 2 (Buy).
Franklin Street Properties’ Zacks Consensus Estimates for 2017 FFO per share remained unchanged at $1.05 over the past month. Its share price has edged down 0.3% in three months’ time.
Columbia Property Trust’s FFO per share estimates for the current year have moved up 1.8% to $1.15 in a month’s time. Its shares have gained 5.8% over the past three months.
MedEquities Realty’s FFO per share estimates for 2017 climbed 0.9% to $1.12 over the past two months. The stock has lost 4.3% during the past three months.
Note: All EPS numbers presented in this report 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.
Zacks Editor-in-Chief Goes "All In" on This Stock
Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.
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Here's Why You Should Hold on to Aimco (AIV) Stock for Now
Residential REIT Apartment Investment and Management Company (AIV - Free Report) — better known as Aimco — has been making diligent efforts to reposition its portfolio by shedding non-strategic properties and investing the proceeds in opportunistic acquisitions. However, intense competition from new supply in various markets is anticipated to dampen the company’s rent growth and new lease pricing ability.
Aimco reported better-than-expected results for third-quarter 2017, reflecting growth in property net operating income (NOI) supported by same-store properties, and lease-up of redevelopment and acquisition communities. The company also benefited from reduced overhead costs. However, this positive was partially offset by the loss of income from apartment sales in 2016.
Notably, Aimco has a solid portfolio diversified in terms of geography and price point. Moreover, the rise in demand for apartment properties driven by ‘echo boomers’ — children of the baby boomer generation — keeps us positive on the stock. This age cohort, which mainly consists of people less than 35 years of age, prefers to stay on its own. Added to this, due to changing lifestyle, people, on an average, are settling later in life and thereby buying homes late, leading to a rising tendency of living in a rented home.
Further, as renting is the only viable option for customers who cannot avail mortgage loans or are unwilling to buy a house at present, demand for Aimco’s premium properties will likely continue to shoot up in the coming quarters.
Importantly, Aimco is revamping its portfolio through property sales and reinvesting the proceeds in select apartment homes with higher rents, superior margins and higher-than-expected growth. Through these efforts, the company increased its revenue per apartment home by 6% to $2,075 in the third quarter. Additionally, it enhanced the quality and expected growth rate of its portfolio.
Also, Aimco has been well on track to enhance its balance sheet and liquidity position, and bring down leverage. The company is aimed at boosting its financial flexibility by increasing the pool of unencumbered apartment assets.
Nevertheless, even though apartment supply has not yet reached its peak level, the delivery numbers remained elevated in the recently-reported quarter. Particularly, new supply is competing with some of the company’s higher rent properties. This high supply in a number of the company’s markets is a concern because it curtails landlords’ ability to command more rent and result in lesser absorption.
In addition to the above, although Aimco’s effort to sell non-core assets and buy property in higher-growth infill areas is a strategic fit for the long term, the dilutive impact on earnings from such asset dispositions cannot be avoided.
Aimco currently carries a Zacks Rank #3 (Hold). In the past six months, shares of the company have outperformed the industry. While the stock has inched up 0.5%, the industry has declined 3.9% during this period. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Better-ranked stocks in the REIT space include Franklin Street Properties (FSP - Free Report) , Columbia Property Trust and MedEquities Realty Trust (MRT - Free Report) . All three carry a Zacks Rank of 2 (Buy).
Franklin Street Properties’ Zacks Consensus Estimates for 2017 FFO per share remained unchanged at $1.05 over the past month. Its share price has edged down 0.3% in three months’ time.
Columbia Property Trust’s FFO per share estimates for the current year have moved up 1.8% to $1.15 in a month’s time. Its shares have gained 5.8% over the past three months.
MedEquities Realty’s FFO per share estimates for 2017 climbed 0.9% to $1.12 over the past two months. The stock has lost 4.3% during the past three months.
Note: All EPS numbers presented in this report 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.
Zacks Editor-in-Chief Goes "All In" on This Stock
Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.
Download it free >>