Apartment Investment and Management Company AIV, commonly known as Aimco, has a well-diversified portfolio of residential properties in key markets that are likely to benefit from favorable demographic trends.Yet, amid the pandemic, and adverse impacts on economy and jobs, the rent-paying capability of tenants will likely bear the brunt, adversely impacting rental rates and occupancy.
In fact, Aimco’s portfolio is well-diversified both in terms of geography and price point (“A,” “B,” and “C+” price points). This helps in mitigating risks to economic downturns and also provides growth opportunities.
Further, strength in its operating platform amid the ongoing economic turbulence enabled it to collect 98% of April rents. Moreover, it recognized 98.3% of May rents, of which 95% was received in cash.
The rise in demand for apartment properties, driven by echo boomers’ preference to stay on their own keeps us positive on the stock. Added to this, due to changing lifestyles, people, on average, are settling later in life and thereby buying homes later, leading to a rising tendency of living in a rented home. Hence, the demand for Aimco’s premium rental properties is expected to continue to rise in the coming quarters.
Leveraging on the trend, the company is enhancing its asset base through portfolio revamp, capital enhancements, redevelopments and occasional developments.
Moreover, it is reinvesting property-sale proceeds in select apartment homes with higher rents, superior margins and higher-than-anticipated growth. Through such moves, Aimco increased its average revenues per apartment home by 5% (year over year) to $2,280 in first-quarter 2020. Also, during the first quarter, Aimco invested $67 million in redevelopment and development activities.
However, the coronavirus pandemic, which has been wreaking havoc and resulting in macroeconomic uncertainties, is expected to impact the rent-paying capability of residential tenants. In fact, due to the several restrictions and shelter-in-place orders in the company’s markets, it witnessed significant declines in leasing activities in late March. Moreover, for April and May, same-store average daily occupancy declined 40 basis points (bps) and 140 bps year over year to 96.6% and 95.6%, respectively.
Moreover, the company expects a competitive new supply to be elevated primarily to “A” price point communities in specific submarkets. This high supply is worrisome because it curtails landlords’ ability to command more rent and result in lesser absorption.
This long with the tenant-friendly political climate in certain states is likely to result in aggressive rental concessions and moderate pricing power of landlords.
Moreover, shares of this Zacks Rank #3 (Hold) company have improved 4.8% over the past month, the same as the industry.
Stocks to Consider
Alexander Baldwin Holdings, Inc.’s ALEX Zacks Consensus Estimate for 2020 funds from operations (FFO) per share has been unchanged at 83 cents over the past month. The company currently flaunts a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
One Liberty Properties, Inc.’s OLP FFO per share estimate for the ongoing year has been unchanged at $1.89 over the past 30 days. The company currently sports a Zacks Rank of 1.
Gladstone Land Corporation’s LAND FFO per share estimate for 2020 has been unchanged at 68 cents over the past month. Further, it currently carries a Zacks Rank of 2 (Buy).
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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