{"id":55609,"date":"2023-09-01T04:56:45","date_gmt":"2023-09-01T08:56:45","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/apartment-income-reit-stock-a-good-pick-in-an-attractive-sector-nyseairc\/"},"modified":"2023-09-01T04:56:49","modified_gmt":"2023-09-01T08:56:49","slug":"apartment-income-reit-stock-a-good-pick-in-an-attractive-sector-nyseairc","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=55609","title":{"rendered":"Apartment Income REIT Stock: A Good Pick In An Attractive Sector (NYSE:AIRC)"},"content":{"rendered":"
\n

<\/picture>
<\/figcaption><\/figure>\n<\/p>\n

Investment Thesis<\/h2>\n

Many home renters aspire to become homeowners, but with rising mortgage rates due to elevated interest rates and high inflation, this goal is hard to attain for many of them.<\/p>\n

This and the lack of affordable homes is a tailwind for single and multi-family residential REITs. I estimate that Apartment Income REIT Corp (<\/span>NYSE:AIRC<\/span>), also known as Air Communities, is a good pick in this sector. The company boasts a high forward dividend yield compared to its peers, approximately 5.50%, and a favorable price-to-FFO ratio. Additionally, it is expected to experience robust FFO growth in 2023.<\/span><\/p>\n

Overview<\/h2>\n

AIRC emerged as a spinoff of AIMCO (AIV) and has been trading on the NYSE since late 2020. It is an internally managed REIT with 25,739 apartment homes in mostly eight key markets, including the Bay Area, Boston, Denver, Washington D.C. Los Angeles, Miami, Philadelphia, and San Diego.<\/span><\/p>\n

New York City is part of the other markets, but exposure there has been reduced during the last quarter, and management aims to exit this market completely by the end of the year.<\/p>\n

Net operating income is well diversified across these eight markets.<\/p>\n

\"NOI<\/span>
\n

Author\u2019s work, numbers from second quarter 2023 earnings release<\/span><\/p>\n<\/figcaption><\/figure>\n

Property quality and tenant base<\/h3>\n

AIRC focuses on high-quality apartments and aims to attract affluent residents. In the last quarter, 58% of its portfolio comprised Class A properties. The average household income of its residents in Q4 2022 was $227,000 which favorably compares to the average of its peers with less than $150,000 income. Despite an average monthly rent of $2797 per unit, I estimate that a high percentage of its residents AIRC should not have problems paying its rent. This can be seen with the low number of delinquencies:<\/p>\n

During the Covid-19 pandemic, when eviction protections for residents were in place, the number of delinquencies rose. In March 2023 there were around 250 delinquencies left in all units, AIRC expects this number to normalize to around 50 delinquent renters with the end of governmental protections at the close of the year<\/p>\n

AIRC maintains an occupancy rate of approximately 95% across all of its eight markets.<\/p>\n

Growth opportunities<\/h3>\n

AIRC pursues both internal and external growth strategies. Externally, it has recently initiated two joint ventures with a value of $1.2 billion, comprising over 3500 units.<\/p>\n

\"AIRC's<\/span>
\n

AIRC \u2013 Investor presentation, June 2023<\/span><\/p>\n<\/figcaption><\/figure>\n

Although AIRC has a 30% stake in the smaller JV, it will obtain half of the cash flow generated by the 443 units. It also has two older joint ventures with a combined gross asset value of $2.9B and approximately 5800 units.<\/p>\n

Internally, the company has seen moderate growth since its inception in 2019, with a revenue growth rate of approximately 8.5% since then. It was slower than that of its sunbelt peers Camden Property Trust (CPT) and Mid-America Apartment Communities (MAA), but it is forecast to accelerate and even outperform sunbelt and coastal peers in 2023 and 2024, with a guidance of 8.0% in 2023 and 4.3% in 2024 respectively. The company sees AvalonBay Communities (AVB), Equity Residential (EQR), Essex Property Trust (ESS), and UDR, Inc. (UDR) as its coastal peers.<\/p>\n

\"Same-store<\/span>
\n

AIRX \u2013 Investor presentation, June 2023<\/span><\/p>\n<\/figcaption><\/figure>\n

A reason for the estimated growth is also the low increase in operating expenses in the last couple of years. If we look at the same-store operating expenses – excluding taxes, insurance, and costs for utilities – then AIRC had nearly the same costs as five years ago (with less than a 1% increase). In the first quarter of 2023, the costs even declined 20 bps compared with Q1 2022.<\/p>\n

Combined with the increase in lease revenues this has led to quite promising growth in FFO since 2020, where the given FFO in 2023 is the mid-point estimate. FFO is expected to be approximately 40% higher than it was in 2020.<\/p>\n

<\/span> <\/span><\/span>