The most common way to calculate the relative value of an REIT such as Apartment Investment & Management Company (or AIMCO) (AIV) is the price-to-FFO (funds from operations) multiple. FFO is widely used because it’s the main earnings metric for REITs, similar to EPS (earnings per share) in other industries. Price-to-FFOx is equivalent to the PE (price-to-earnings) ratio used in other industries.
Peer group price-to-FFO multiple
A closer look at AIMCO’s (AIV) trailing-12-month price-to-FFO multiple shows that it’s in line with its historical valuation. Over the last eight years, AIMCO’s (AIV) price ranged from 3.4x to 33.5x of its FFO, with a current price-to-FFO multiple of around 16.5x.
During the housing crisis, AIMCO (AIV) experienced its lowest price-to-FFO multiple. The company recorded its highest multiple in December 2009.
At the current multiple, AIMCO’s (AIV) stock is trading at a lower price-to-FFO multiple than its major peers. For example, Essex Property Trust (ESS) is trading at a multiple of 25.6x, followed by Equity Residential (EQR) at 23.2x. The industry average price-to-FFO multiple is 20.1x. AvalonBay Communities (AVB) is trading at 22.7x. On the other hand, Camden Properties Trust (CPT) is trading at a lower price-to-FFO multiple at 18x.
Lower multiple for AIMCO
Historically, a lower-than-average price-to-FFO multiple for AIMCO (AIV) signifies that it wasn’t able to provide consistent capital value return to investors in spite of providing a higher dividend yield compared to some of its peers. Currently, AIMCO (AIV) offers a dividend yield of 3.2%, which is higher than Equity Residential (EQR) at 2.83%, AvalonBay Communities (AVB) at 2.9%, and Essex Property Trust (ESS) at 2.6%. The industry average dividend yield is 3.2%. The iShares US Real Estate ETF (IYR) invests 0.73% of its portfolio in AIMCO.
In the next part of this series, we’ll discuss AIMCO’s EV-to-EBITDA (enterprise value to earnings before interest, taxes, depreciation, and amortization) multiple.