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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 second-quarter 2019 results on Aug 1, after market close. Both its funds from operations (FFO) per share and revenues might witness a year-on-year decline.

In the last reported quarter, this Denver, CO-based residential real estate investment trust (REIT) delivered an in-line performance in terms of FFO per share. The company recorded decent growth in same-store property NOI. However, results were 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 the other two. This resulted in an 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 price-eps-surprise | Apartment Investment and Management Company Quote

Factors at Play

The latest figures from real estate technology and analytics firm RealPage, Inc. (RP) suggest that during the current year’s prime leasing period, the U.S. apartment rental market was able to capitalize on stellar demand for rental units.

Per the RealPage report, from April through June, net move-ins aggregated 155,515 units, which came in 11% higher than the second-quarter 2018 product absorption, as well as touched a five-year high. Occupancy reached 95.8% during the second quarter, up from the prior-year quarter’s 95.4% despite steady delivery of new units. Moreover, the market has achieved a 3% increase in rents from the prior-year level, attaining an average of $1,390 per month.

Amid these, Aimco is anticipated to benefit from its portfolio situated in key U.S. markets. Diversified in terms of geography and price point, the company’s well-located assets are likely to benefit from favorable demographics, household formation, stable economy and job-market growth.

Moreover, the company is making concerted efforts to enhance its portfolio and generate higher revenues. It aims at creating value by repositioning communities within its portfolio. Aimco has also been selling low-return properties and reinvesting the proceeds in measures like redevelopment and development, capital enhancements and property acquisitions. The company will likely continue to reap benefits from these efforts in the second quarter as well.

However, the struggle to lure renters is likely to have continued into the second quarter as supply volumes were aggressive in a number of the company’s markets. 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 impeding its top-line growth. Furthermore, we predict its upcoming results to bear the dilutive impact from asset dispositions.

In fact, the Zacks Consensus Estimate for second-quarter revenues is pegged at $229.1 million, indicating a decline of 8.4% from the year-ago quarter’s reported figure.

Over the past three months, the consensus estimate for the quarter’s FFO per share has been revised marginally downward to 61 cents, indicating bearish analyst sentiment. This also indicates a 3.2% year-over-year decrease. For the June-ended quarter, management projects pro-forma FFO per share of 57-61 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 -1.24%.

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:

Federal Realty Investment Trust FRT, scheduled to release earnings on Aug 1, has an Earnings ESP of +0.18% and currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

CyrusOne Inc. CONE, slated to report quarterly figures on Jul 31, has an Earnings ESP of +1.37% and carries a Zacks Rank #3, at present.

Healthcare Realty Trust Incorporated HR, set to release June-end quarter results on Jul 30, has an Earnings ESP of +0.72% and currently holds a Zacks Rank #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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