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Why Is Apartment Investment Management (AIV) Down 2.8% Since Last Earnings Report?

Zacks Equity Research
PolyOne (POL) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

A month has gone by since the last earnings report for Apartment Investment Management (AIV). Shares have lost about 2.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Apartment Investment Management due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Aimco's Q4 FFO Misses Estimates, Revenues Decline Y/Y

Aimco reported fourth-quarter 2018 pro forma FFO of 63 cents per share, missing the Zacks Consensus Estimate of 64 cents. Also, the figure remained flat compared with the year-ago tally.

The company recorded decent growth in same-store property NOI. Owing to expected taxable gains from the company’s 2019 property sales, it announced a special dividend on its common stock. However, the top line for the fourth quarter was negatively impacted by revenues lost from the company’s Asset Management business sale.

Notably, total revenues of $232.02 million in the reported also lagged the Zacks Consensus Estimate of $237.24 million. Further, the revenue figure came in around 9% lower than the prior-year tally.

For full-year 2018, pro forma FFO per share came in at $2.47, missing the Zacks Consensus Estimate of $2.48. Nonetheless, the figure improved 1% year over year. Revenues for full-year 2018 declined 3.2% year over year to $972.4 million. The revenue figure, however, outpaced the Zacks Consensus Estimate of $970.53 million.

Quarter in Detail

Same-store revenues (before utility reimbursements) increased 3.4% year over year to $147.1 million, while expenses (net of utility reimbursements) flared up 3% from the prior-year quarter to $35.9 million. Consequently, same-store NOI climbed 3.6% to $111.2 million on a year-over-year basis.

Same-store average daily occupancy expanded 60 basis point (bps) year over year to 96.9%. Rental rates on new leases were up 0.2%, whereas rental rates on renewal leases were up 4.3% from the expiring lease rates.

As of Dec 31, 2018, Aimco had cash and restricted cash of $73 million. Moreover, the estimated fair market value of the company’s unencumbered apartment communities was around $2.7 billion.

Furthermore, at the end of the quarter, Aimco had borrowing capacity of $633 million under its revolving credit facility, after consideration of $7 million of letters of credit backed by the facility.

Portfolio Activity

During the reported quarter, Aimco invested $51 million in redevelopment and development activities. In addition, the company is revamping its portfolio through property sales, and reinvesting the proceeds in select apartment homes with higher rents, superior margins and higher-than-expected growth.

Through these efforts, the company increased its average revenues per apartment home by 4% to $2,126. Additionally, NOI margin expanded by 100 bps year over year to 73%. The company’s percentage of A, B and C+ home was 51%, 33% and 16%, respectively, in fourth-quarter 2018.

Guidance

For full-year 2019, the company provided pro forma FFO per share guidance of $2.41-$2.51.

The company’s full-year projections are backed by assumptions of same-store revenue growth of 2.8-3.8% and same-store expense growth of 2-3%, resulting in same-store NOI improvement of 2.7-4.5%.

For first-quarter 2019, Aimco provided pro forma FFO per share guidance of 58-62 cents.

Dividend

On Feb 3, Aimco's board of directors announced a special dividend on the common stock consisting of $67.1 million in cash and 4.5 million shares of common stock. This includes a regular quarterly cash dividend for 2019 of 39 cents per share. The special dividend will be paid on Mar 22, to stockholders of record as of Feb 22, 2019.

Additionally, stockholders can choose to receive the special dividend in the form of all cash or all stock, subject to proration in case of oversubscription of either option. In fact, based on the company’s closing price of $49.07 (as of Feb 1, 2019), stockholders will receive $1.54 per share predominantly in stock.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Apartment Investment Management has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Apartment Investment Management has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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