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Aimco's (AIV) Q2 FFO Misses by a Whisker, Revenues Beat

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Apartment Investment and Management Company (AIV - Free Report) , better known as Aimco, reported second-quarter 2018 pro forma funds from operations (FFO) of 61 cents per share, missing the Zacks Consensus Estimate by a penny. However, the figure came in line with the year-ago quarter tally.

Results display growth in same-store property net operating income (NOI), and lease-up of redevelopment and acquisition properties. However, these positives were offset by lower NOI from apartment sales in 2017 and 2018, increased interest expense on corporate borrowings mainly associated with acquisitions, increased personnel costs, and lower tax benefits.

Notably, total revenues of $250.2 million comfortably outpaced the Zacks Consensus Estimate of $244.5 million. In addition, the reported figure came in marginally higher than the prior-year quarter tally of $249.1 million.

Quarter in Detail

Same-store revenues (before utility reimbursements) increased 3.2% year over year to $147.0 million, while expenses (net of utility reimbursements) flared up 3.3% from the prior-year quarter to $38.5 million. Consequently, same-store NOI climbed 3.2% to $108.5 million on a year-over-year basis.

Same-store average daily occupancy expanded 40 basis point (bps) year over year to 96.3%. Rental rates on new leases were up 1.9%, whereas rental rates on renewal leases were up 4.8% from the expiring lease rates.

As of Jun 30, 2018, Aimco had cash and restricted cash on hand of $88 million. Moreover, the estimated fair market value of the company’s unencumbered apartment communities was around $2 billion.

Further, at the end of the quarter under review, Aimco had borrowing capacity of $368 million under its revolving credit facility, after consideration of outstanding borrowings of $220 million and $12 million of letters of credit backed by the facility.

Portfolio Activity

During the reported quarter, Aimco invested $42 million in redevelopment and development. In addition, the company 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 average revenues per apartment home by 7% to $2,090. Additionally, it enhanced its NOI margin to 72% from 71% in the prior-year quarter. The company’s percentage of A, B and C+ home was 50%, 35% and 15%, respectively, in second-quarter 2018.
 
Guidance

For full-year 2018, the company updated its pro forma FFO per share guidance to $2.40-$2.48 from $2.39-$2.49 provided earlier. The Zacks Consensus Estimate for the same is $2.44.

The company’s full-year projections are backed by assumptions of same-store revenue growth in the range of 2.50-3.00% and NOI improvement of 2.20-3.00%.

For third-quarter 2018, Aimco provided pro forma FFO per share guidance of 58-62 cents. The Zacks Consensus Estimate for the same is pinned at 62 cents.

Dividend

On Aug 1, Aimco announced a quarterly cash dividend of 38 cents per share of Class A Common Stock for the June-end quarter. This marks a 6% year-over-year increase. The dividend will be paid on Aug 31, to stockholders of record as of Aug 17, 2018.

Bottom Line

Aimco has a solid portfolio, diversified in terms of geography and price point. Moreover, the company is making diligent efforts to reposition its portfolio by shedding non-strategic properties and investing the proceeds in opportunistic acquisitions. The company also completed its exit from the affordable housing line of business and has reduced its leverage.

Nonetheless, the dilutive impact on earnings from asset dispositions cannot be bypassed in the near term. Also, new supply in various markets is anticipated to dampen the company’s rent growth and new-lease pricing ability. Hike in interest rate adds to its woes.

Aimco currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Apartment Investment and Management Company Price, Consensus and EPS Surprise
 

We, now, look forward to the earnings releases of Lamar Advertising Company (LAMR - Free Report) , Host Hotels & Resorts, Inc. (HST - Free Report) and Outfront Media Inc. (OUT - Free Report) , all of which are scheduled to report their quarterly numbers next week.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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