Earnings Scorecard: Aimco (AIV)

Apartment Investment and Management Company (AIV), as the real estate investment trust (REIT) is popularly known, reported fiscal 2010 second quarter recurring fund from operations (FFO) of 41 cents per share, which exceeded the Zacks Consensus Estimate by 8 cents. 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.

We cover below the results of the recent earnings announcement, subsequent analyst estimate revisions and the Zacks ratings for the short-term and long-term outlook for the stock.

Earnings Report Review

During the quarter, total revenues stood at $295 million, compared to $291.6 million in the year-ago period. Total revenues for the reported quarter surpassed the Zacks Consensus Estimate of $272 million. (Read our full coverage on this earnings report: Aimco Tops Estimates)

Earnings Estimate Revisions- Overview

Fiscal earnings estimates have climbed for Aimco since the earnings release, indicating that analysts are bullish about the long-term performance of the company. Let’s dig into the earnings estimate details.

Agreement of Estimate Revisions

In the last 30 days, fiscal 2010 earnings estimates were raised by 7 analysts out of 9 covering the stock, while none have lowered the same. For fiscal 2011, 5 out of 15 analysts covering the stock have revised their estimates upward, while 2 have lowered the same. This indicates a positive directional movement for fiscal year earnings. Management further observed a steady improvement in the operating trends across the portfolio with high average daily occupancy and positive spreads.

Magnitude of Estimate Revisions

Earnings estimates for fiscal 2010 have increased 7 cents from $1.27 to $1.34 since the earnings announcement. For fiscal 2011, earnings estimates have increased 4 cents from $1.41 to $1.45. This is encouraging news for the company. Aimco also increased its recurring FFO guidance for full year 2010 from the range of $1.25 to $1.35 per share to $1.37 to $1.45.

Moving Forward

The long-term earnings estimate picture for Aimco is positive. Aimco is one of the largest owners and operators of multifamily apartments in the U.S., with a diversified portfolio of conventional, affordable and student housing communities. The company has a strong portfolio of Class ‘B’ and Class ‘C’ properties primarily catering to the middle-income markets. In addition, Aimco rents and leases its apartment units to a diverse base of residents. This provides a hard-to-replicate competitive advantage over its peers.

However, despite attempts to reposition its portfolio in higher growth markets, much of the company’s portfolio still resides in areas where housing is relatively cheap. As the company continues to sell non-core assets and buy in higher growth, infill areas, we expect continued earnings dilution.

Currently, we maintain our Neutral rating on Aimco with a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation and indicates that the stock is expected to perform in line with the overall U.S. equity market for the next 1-3 months.

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