Is It Wise To Hold Aimco (AIV) In Your Portfolio Right Now?

We have updated our research report on Apartment Investment and Management Company (NYSE:AIV) – better known as Aimco – on Aug 8, 2016.

Amid an environment, where elevated supply of apartment units has cast a pall on the performances of several residential REITs in Q2, Aimco came up with better-than expected numbers for the quarter. Late in July, this residential real estate investment trust (REIT) reported second-quarter 2016 pro forma funds from operations (“FFO”) of 59 cents per share, beating the Zacks Consensus Estimate of 57 cents and up 5% from the year-ago tally of 56 cents.

Results were driven by improving operating portfolio performance, enhanced contribution from redevelopment & acquisition communities and higher non-core earnings, though loss of income from apartment sales in 2015 adversely affected the bottom line. Also, for 2016, Aimco raised its pro forma FFO per share guidance range to $2.26–$2.34 from the previous range of $2.24–$2.34, which is encouraging.

What’s Good About Aimco, and What Not?

Aimco has a solid portfolio that is diversified both in terms of geography and price point. The properties are situated among the largest coastal and job-growth markets in the U.S. The diversification enables the company to enjoy relatively stable revenues despite new supply in various markets.

Also, the consistent sale of lowest-rated portfolio and reinvestment of proceeds in select apartment homes with higher rents and superior margins continue to strengthen its position in high-growth potential markets. This has helped the company to raise its conventional percentage net operating income in target markets to 91% in second-quarter 2016, from 89% a year earlier, while revenue per apartment home were up 8% year over year to $1,900 from $1,759 a year ago. Such efforts are anticipated to help the company improve its overall portfolio quality and achieve a favorable mix.

However, even if the divestitures pay off in the long run, the dilutive impact on earnings from such asset dispositions cannot be avoided either in the near term. Moreover, stiff competition and any rise in interest rate in the upcoming period can add to its woes.

While the Zacks Consensus Estimate has remained stable for 2016 at $2.31, it has gone up a cent to $2.49 for 2017, over the past seven days. Currently, Aimco carries a Zacks Rank #3 (Hold).

APARTMENT INVT Price and Consensus

APARTMENT INVT Price and Consensus | APARTMENT INVT Quote

Other Stocks to Consider

Investors interested in the residential REIT industry can consider other stocks like American Campus Communities, Inc. (NYSE:ACC) , Post Properties Inc. Post Properties Inc. (NYSE:PPS) and Select Income REIT (NASDAQ:SIR) . Each of these stocks carries a Zacks Rank #2 (Buy).

Note: 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. All EPS numbers presented in this write up represent FFO per share.