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

Zacks Equity Research

Apartment Investment & Management Co. AIV — commonly known as Aimco — is slated to report fourth-quarter 2018 results on Feb 4, after the market closes. Its funds from operations (FFO) per share will likely reflect growth, while revenues might witness a year-over-year decline.

In the last reported quarter, this Denver, CO-based residential real estate investment trust (REIT) surpassed the Zacks Consensus Estimate posting pro forma FFO of 63 cents per share. Results displayed growth in same-store property net operating income (NOI) and same-store average daily occupancy.

Aimco has a mixed earnings surprise history. Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate in one occasion, reported in-line numbers in the other two and missed in another. This resulted in average surprise of 0.42%. 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

The U.S. apartment market witnessed an encouraging fourth quarter in 2018, with accelerated rent growth and elevated occupancy level amid robust demand for rental units. Per a study by the real estate technology and analytics firm — RealPage, Inc. — the annual pace of apartment rent growth in the United States picked up and reached 3.3% in the quarter, ahead of the 2.5% recorded in 2017.

Also, occupancy came in at 95.4%, up from 95% reported at year-end 2017. Reflecting the strongest demand realized since 2010, occupied apartment tally moved up by 323,290 units in 2018, and demand surpassed annual completions that aggregated 287,007 units.

Amid these encouraging numbers, Aimco too is anticipated to benefit from its portfolio situated in key U.S. markets. In fact, the Zacks Consensus Estimate for fourth-quarter rental and other property revenues attributable to real estate is pegged at $235 million, indicating a marginal increase sequentially.

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 investing these proceeds in strategic apartment communities that offer high projected free cash flow internal rates of return. We expect the company to reap benefits of these efforts in the fourth quarter as well.

However, apartment deliveries are expected to have remained elevated in a number of Aimco’s markets in the fourth 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.

The Zacks Consensus Estimate for fourth-quarter revenues is pinned at $237.2 million, indicating a year-over-year decline of 7%.

Further, we anticipate its results to bear the brunt of earnings dilution on account of asset dispositions.

Additionally, rate hikes are a concern as amid rising rates, financing costs will flare up. As such we anticipate the company’s interest expenses to escalate in the quarter under review.

Lastly, over the past month, the Zacks Consensus Estimate for FFO per share for the soon-to-be-reported quarter has been revised marginally upward to 64 cents, indicating bullish sentiments of analysts. This also indicates a 1.6% year-over-year increase. For the Dec-end quarter, management projects pro-forma FFO per share of 61-65 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 -1.58%.

Zacks Rank: Aimco carries a Zacks Rank of 2 (Buy), which increases the predictive power of ESP. However, we also need a positive ESP to be confident of the earnings beat.

Stocks That Warrant a Look

While the other players in this space are lined up to report their financial results, below are three stocks, poised to beat on earnings per the proven Zacks model. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AvalonBay Communities AVB, slated to report fourth-quarter results on Feb 4, has an Earnings ESP of +0.22% and holds a Zacks Rank of 3.

American Tower Corporation AMT, set to release earnings on Feb 27, has an Earnings ESP of +0.29% and carries a Zacks Rank of 3.

Omega Healthcare Investors, Inc. OHI, scheduled to report quarterly numbers on Feb 11, has an Earnings ESP of +0.26% and carries a Zacks Rank of 2.

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

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