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What's in the Cards for Aimco (AIV) This Earnings Season?

Zacks Equity Research

Apartment Investment & Management Co. AIV — commonly known as Aimco — is slated to report first-quarter 2019 results on May 2, after market close. Both its funds from operations (FFO) per share and revenues might witness a year-over-year decline.

In the last reported quarter, this Denver, CO-based residential real estate investment trust (REIT) missed the Zacks Consensus Estimate in terms of FFO per share by 1.56%. The top line was negatively impacted by revenues lost from the company’s Asset Management business sale.

Aimco has a mixed earnings surprise history. Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on one occasion, reported in-line numbers in one and missed in two. This resulted in average positive surprise of 0.03%. This is depicted in the chart below:

Apartment Investment and Management Company Price and EPS Surprise
 

Apartment Investment and Management Company Price and EPS Surprise | Apartment Investment and Management Company Quote

Factors at Play

According to a recent study by the real estate technology and analytics firm — RealPage, Inc. — although new supply volumes remained elevated in the first quarter, the U.S. apartment market managed to retain the rent momentum, which was achieved in the later part of 2018. Apartment rents were up 3.2% on an annual basis as of the first quarter of 2019. In fact, for six straight months, annual rent growth exceeded the 3% mark. In addition, occupancy came in at 95.2% in the quarter, expanding 10 basis points year on year.

Amid these encouraging numbers, Aimco too is anticipated to benefit from its portfolio situated in key U.S. markets. Further, the company has made immense efforts to enhance its portfolio and generate higher revenues. In line with this, Aimco has been selling low-return properties and reinvesting the proceeds in measures like redevelopment and development, capital enhancements and property acquisitions. We expect the company to reap benefits from these efforts in the first quarter as well.

However, the struggle to lure renters is likely to have continued in the first quarter as supply volumes were aggressive. In fact, per the above mentioned study, over the past six months, demand could not keep up with new product deliveries that aggregated 127,121 market-rate units in fourth-quarter 2018 and in first-quarter 2019. Also, the study pointed out that market rate apartment properties, under construction, have more than 403,000 units, which will be completed over the next 18 months.

Particularly, for Aimco, apartment deliveries are expected to have remained elevated in a number of its markets in the first quarter. This high supply is a concern because it curtails landlords’ ability to command more rent and result in lesser absorption. Such an environment is predicted to have resulted in aggressive rental concessions and moderate pricing power of landlords, thereby impacting its top-line growth. Further, we expect its upcoming results to bear the dilutive impact from asset dispositions.

In fact, the Zacks Consensus Estimate for first-quarter revenues is pegged at $229.3 million, indicating a decline of 7.4% from the year-ago reported figure.

Over the past month, the consensus estimate for FFO per share for the quarter has been revised marginally downward to 61 cents, indicating bearish sentiments of analysts. This also indicates a 1.6% year-over-year decrease. For the March-ended quarter, management projects pro-forma FFO per share of 58-62 cents.

Earnings Whispers

Our proven model does not show that Aimco has the right combination of the two key ingredients — positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat in the quarter to be reported.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Aimco has an Earnings ESP of -1.90%.

Zacks Rank: Aimco carries a Zacks Rank of 3, which increases the predictive power of ESP. However, we also need a positive ESP to be confident of a positive surprise.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Public Storage PSA, scheduled to release earnings on May 1, has an Earnings ESP of +1.15% and currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Welltower, Inc. WELL, set to report quarterly results on Apr 30, has an Earnings ESP of +0.58% and a carries a Zacks Rank of 3.

Mid-America Apartment Communities, Inc. MAA, slated to report first-quarter results on May 1, has an Earnings ESP of +0.29% and a Zacks Rank of 3.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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