UPDATE: UBS Upgrades Apartment Investment Management (AIV) to Buy

UBS upgraded Apartment Investment Management (NYSE: AIV) from Neutral to Buy with a price target of $36 (from $32). Analyst Nick Yulico pointed out bargain valuation and the possibility of a guidance raise.

"Despite outperformance for the stock ytd, we think AIV's valuation still does not reflect the attractive portfolio upgrades that AIV has completed since 2009. We estimate AIV trades at a 15% discount to 1-yr forward NAV, with the market pricing AIV as if it still owned its lesser-quality 2008-era portfolio. We expect AIV to post ~5% annual SSNOI growth in the 2013-15 period, similar to heavier Class A peers like EQR/UDR, which trade closer to NAV. We like that AIV's Class B/C exposure (60% of units) should provide a hedge against increasing new apartment supply in the US and that California will rise to 33% of the overall portfolio in coming years as large redevelopments like the $365m Lincoln Place project in Venice, CA stabilize and add to the Class A pool," said Yulico.

"We expect AIV to realize a ~5.5% stabilized yield on Lincoln Place, leading to $1 per share of NAV creation (this asset alone equals ~5% of total NAV). After touring the asset in June, we think it deserves a 4% cap rate ($650K/unit), supported by recent private market transaction comps. AIV also screens as a possible guidance raise story in 2Q, with SSNOI/SSREV in 1Q tracking 100-150bps above FY guidance midpoint, and recent Axiometrics data showing improving 2Q vs. 1Q rent growth in AIV's markets," he added.

For an analyst ratings summary and ratings history on Apartment Investment Management click here. For more ratings news on Apartment Investment Management click here.

Shares of Apartment Investment Management closed at $32.44 yesterday.

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