Apartment Investment and Management Company (AIV - Free Report) , also known as Aimco, is a promising stock at present, backed by its redevelopment and development efforts to improve portfolio quality. Moreover, the company’s earnings prospects and industry tailwinds make it an attractive pick.
Notably, the company has been witnessing upward estimate revisions, reflecting analysts’ optimism about its prospects. Over the past 30 days, the Zacks Consensus Estimate for 2019 and 2020 funds from operations (FFO) per share has moved north marginally.
Further, in early December, Aimco announced a $275-million loan to the partnership, which owns Parkmerced Apartments — a 3,221-apartment home community on a 152-acre site in southwest San Francisco. The company has also acquired a 10-year option to buy 30% stake in the partnership and thus, participate in its substantial development pipeline. This offers it risk-adjusted scope to take part in the significant value creation anticipated from the partnership’s vested rights for development.
This Zacks Rank #2 (Buy) stock has lost 1.3% over the past three months, narrower than the industry’s decline of 2.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Why the Stock is an Attractive Pick
High ROE: Aimco’s trailing 12-month return on equity of 19.6% compares favorably with the industry’s 4.4%. This indicates the company’s growth potential and reflects its superior efficiency in using shareholders’ funds.
Favorable industry fundamentals: Following a robust prime leasing season in 2019, the U.S. apartment rental market put up a decent show in October and November. Per the latest figures from real estate technology and analytics firm RealPage, Inc. (RP - Free Report) , occupancy remained as high as 95.7% in November, reflecting rise of 40 basis points year over year. This also marks the highest rate in any November on record. Moreover, annual U.S. rent growth remained decent in the month at 2.9%, same as October. Amid the slow demand for apartments during colder months (as renters usually prefer less to move in the winter), these numbers are encouraging. As for Aimco, with a diversified portfolio of residential properties in key markets, the company is well positioned to benefit from favorable industry fundamentals and encouraging demographic trends.
Encouraging capital recycling efforts: Aimco is reinvesting property sale proceeds in select apartment homes with projected free cash flow internal rates of return higher than expected from the communities being sold. Moreover, the company is focusing on capital enhancements, redevelopments and occasional developments. Through these moves, it has increased its average revenues per apartment home. Further, such efforts are anticipated to enhance its overall portfolio quality and achieve a favorable mix for long-term growth.
Improving financial health: The company is making efforts to strengthen its balance sheet, improve liquidity position and reduce leverage. In fact, it is taking advantage of current interest rates to extend duration, reduce refinancing risk and lower cost of debt. Moreover, the company is aimed at boosting its financial flexibility by increasing its pool of unencumbered apartment assets. As of Sep 30, 2019, the estimated fair market value of the company’s unencumbered apartment communities was around $2.4 billion. A strong balance sheet will offer ample scope to pursue growth endeavors.
Other Key Picks
Spirit Realty Capital, Inc. (SRC - Free Report) carries a Zacks Rank of 2, currently. The Consensus Estimate for 2019 FFO per share has moved marginally upward to $3.33 over the past 30 days.
Equity Residential’s (EQR - Free Report) FFO per share estimates for the current year have moved slightly north to $3.47 over the past 60 days. It carries a Zacks Rank of 2, at present.
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