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Aimco Acquires 47% Stake in Palazzo Joint Venture for $451M

Apartment Investment and Management Company AIV – better known as Aimco – disclosed the acquisition of 47% stake in the Palazzo joint venture owned by institutional investors.  The $451.5 million deal enabled the residential REIT gain full ownership of three Palazzo communities.

The leverage neutral paired trade transaction is in sync with Aimco’s strategy of revamping its portfolio through property sales and reinvesting the proceeds in select apartment homes with higher rents, superior margins and higher-than-expected growth.

The Mid-Wilshire, LA-based Palazzo communities consist of a 611-apartment home community – Palazzo East, a 521-apartment home community- Palazzo at Park La Brea, and a 250-apartment home community – Villas at Park La Brea. Aimco has been operating these properties for the past 15 years and plans to redevelop each one of them, in order to meet the needs of different market segments.

The acquisition is a strategic fit for the company, as these communities are located in a thriving sub-market. Particularly, the properties are situated quite near to the employment hubs of Beverly Hills, Hollywood and Century City, and are just six miles away from Downtown LA and Santa Monica.

In fact, with the ease of transportation, sound connectivity to major employment centers, as well as presence of upscale retail outlets, like The Grove in the neighborhood, these properties will likely hold significance for educated and high-income customers.

Moreover, this transaction will enhance the company’s portfolio with comparatively newer properties, as the average age of Palazzo properties is 12 years, while the average age of property sales to fund the acquisition is 34 years. 

Further, the acquisition is anticipated to increase the free cash flow internal rate of return by 150 basis points. In addition, the buyout is projected to raise the company’s average monthly revenue per apartment home by $65.

Nevertheless, supply issues in a number of markets have bothered Aimco in the recent quarters. The company’s shares have declined 4.9% in the last three months, underperforming the Zacks categorized REIT and Equity Trust – Residential industry’s return of 0.6%.

Currently, Aimco carries a Zacks Rank #3 (Hold).

Stocks to Consider

Investors can also consider better-ranked stocks in the Residential REIT space like American Campus Communities, Inc. ACC, Equity LifeStyle Properties, Inc. ELS and NexPoint Residential Trust, Inc. NXRT. 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.

For American Campus Communities, the Zacks Consensus Estimate for full-year 2017 funds from operations (FFO) per share is expected to be up nearly 4.6% year over year to $2.37.

Equity LifeStyle and NexPoint Residential Trust have long-term growth rates of 4.7% and 5%, respectively.

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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Apartment Investment and Management Company (AIV): Free Stock Analysis Report
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NexPoint Residential Trust, Inc. (NXRT): Free Stock Analysis Report
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