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AIMCO (AIV) Q1 FFO Beats Estimates; 2016 Outlook Raised

Apartment Investment and Management Company AIV – better known as Aimco – reported first-quarter 2016 pro forma funds from operations (“FFO”) of 57 cents per share, beating the Zacks Consensus Estimate by 2 cents. Further, the figure came ahead of the year-ago tally by 5 cents.

Improving operating portfolio performance, enhanced contribution from redevelopment & acquisition communities and lower interest expenses supported the pro forma FFO. However, a fall in non-core earnings and loss generated from apartment sales in 2015 adversely impacted the bottom line.

For the reported quarter, total revenue came in at $246.2 million, beating the Zacks Consensus Estimate of $244.3 million, and exceeding the prior-year figure by 0.8%.

Quarter in Detail

In the Conventional real estate portfolio, same-store revenues increased 4.8% year over year to $172.9 million, while expenses rose 0.1% year over year to $53.9 million. Consequently, same-store NOI climbed 7.1% to $119 million on a year-over-year basis.

Same-store average daily occupancy rose 10 basis points year over year to 96%. Rental rates on new and renewals leases were up 3.5% and 6%, respectively, from the expiring lease rates.

At the end of the quarter, Aimco had cash and restricted cash on hand of $152.9 million. Moreover, the estimated fair market value of the company’s unencumbered apartment communities stood at $1.8 billion.

Further, At the end of the quarter, Aimco’s outstanding borrowings on its revolving credit facility were $106.1 million and available capacity was $463.9 million after considering a net of $30 million of letters of credit backed by the facility.

Portfolio Activity

During the quarter, Aimco invested $31 million in redevelopment. A major chunk of this investment was for the redevelopment of its Center City Philadelphia-based mixed-use communities of The Sterling and Park Towne Place.

Additionally, the company invested $15.6 million in One Canal development.

As intended, Aimco continues to sell 5–10% of its lowest rated portfolio each year and uses the proceeds for acquisition and redevelopment of higher-quality apartments.

Accordingly, during Mar 31, 2015 to Mar 31, 2016, Aimco increased its period-end portfolio average revenue per apartment home by 9% to $1,864 along with enhancing its portfolio free cash flow margin by 3%.

Moreover, the company raised the percentage of its conventional property NOI earned in target markets to 91%.

2016 Guidance

For 2016, Aimco raised pro forma FFO per share guidance range to $2.24–$2.34 from the previous range of to $2.23–$2.33. The Zacks Consensus Estimate of $2.29 per share falls within the guided range. For 2016, the company increased NOI change in a range of 5.50–6.50% from the previous range of 5.25–6.25%.

For second-quarter 2016, Aimco provided pro forma FFO guidance in a band of 54–58 cents. The Zacks Consensus Estimate of 58 cents falls within the projected range. For second-quarter 2016, the company expects NOI change to come within 3.5–4.5% compared with the prior-year quarter.

Dividend

Aimco recently declared a quarterly cash dividend of 33 cents per share of Class A Common Stock for first-quarter 2016. The dividend will be paid on May 31, 2016 to stockholders of record on May 20.

In Conclusion

Aimco’s portfolio enhancement activities, through continued property sales and reinvestment of the proceeds in select apartment homes with higher rents, superior margins and greater-than-expected growth, continue to strengthen its position in high-growth markets. Also, rise in demand for apartment properties driven by ‘echo boomers’ – children of the baby boomer generation – promises better prospects.

However, though the divestitures will benefit the company in the long run, its near-term adverse effect on the earnings of this Zacks Rank #4 (Sell) stock cannot be avoided.

We now look forward to other REITs that are scheduled to release first-quarter 2016 results next week. These include General Growth Properties, Inc GGP, Taubman Centers, Inc. TCO and Vornado Realty Trust VNO.

Note: Fund from operations, 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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