Aimco: REIT Returns in Rentals

05/27/2014 7:00 am EST

Focus: REITS

Benjamin Shepherd

Analyst, Breakthrough Tech Profits, Global Income Edge and Personal Finance

The Federal Reserve may be sticking to its story that there’s virtually no inflation in the US economy, but, if you rent, you know otherwise, suggests Benjamin Shepherd, editor of Inflation Survival Letter.

Apartment vacancy rates are near record lows. A dearth of available units coupled with slow income growth has driven median rents as a percentage of household income up from about 20% a decade ago to about 30% today.

But, while renters may have it rough, those who own and operate multi-family housing units are bringing in a steadily growing stream of cash that is extremely attractive to investors.

An excellent case in point is Apartment Investment and Management Company (AIV), known as Aimco. As a real estate investment trust, it is required to payout at least 90% of their income to investors.

What sets Aimco apart is that, while it owns and operates nearly 60,000 rental apartments across the country and doubled its investment in development and redevelopment to $194 million last year, it uses surprisingly little leverage in its operations.

Aimco’s funds from operations (FFO), a key measure of REIT revenue, rose by 11% last year to $2.04 per share. Part of that strong growth is due to the REIT’s strategy of operating both high-end and mid-tier apartment homes with the strongest rent rate growth coming from the higher end.

With the forecast for another year of solid rental rate growth ahead of it, the company expects FFO growth of about 10% over the course of 2014.

Another attractive feature is Aimco’s 3.6% yield; it has consistently increased its dividend over the past five years at a rate well in excess of inflation. Most recently, it boosted its distribution by 8% in the fourth quarter.

Aimco’s shares may be somewhat volatile in the coming months as a result of interest rate speculation, but it offers a steady stream of income which will only grow along with the uptrend in average rental rates. That makes it a terrific inflation hedge as well.

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