Will Elevated Supply Dampen Aimco's (AIV) Earnings In Q3?

Apartment Investment & Management Co. (NYSE:AIV) — commonly known as Aimco — is slated to report third-quarter 2018 results on Nov 1, after the market closes. Both its funds from operations (FFO) per share and revenues will likely display a decline.

In the last reported quarter, this Denver, CO-based residential real estate investment trust (REIT) missed the Zacks Consensus Estimate by a penny. Results displayed growth in same-store property net operating income (NOI), and lease-up of redevelopment and acquisition properties. However, these positives were offset by lower NOI from apartment sales in 2017 and 2018, elevated interest expense on corporate borrowings mainly associated with acquisitions, higher personnel costs, and lower tax benefits.

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 an average surprise of 0.00%. This is depicted in the chart below:

Factors at Play

Apartment deliveries are expected to have remained elevated in a number of Aimco’s markets in the third 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.

The company is making diligent efforts to improve its portfolio mix through property sales, and reinvesting the proceeds in acquisitions of select apartment homes with projected free cash flow internal rates of return greater than expected from the communities being sold. Moreover, it is reinvesting the proceeds in measures like capital enhancements, redevelopments and occasional developments.

While such streamlining efforts are a strategic fit for the long term, the near-term dilutive effect cannot be bypassed. In fact, such short-term impact is likely to depress the company’s quarterly results. Further, rate hikes are a concern as amid rising rates, financing costs will flare up. As such the company’s interest expenses are likely to escalate in the quarter under review.

The Zacks Consensus Estimate for third-quarter revenues is pinned at $241.2 million, indicating a year-over-year decline of 5.3%.

Also, there is a lack of any solid catalyst for raising optimism about the company’s business activities and prospects. Over the past month, the Zacks Consensus Estimate for FFO per share for the soon-to-be-reported quarter remained unchanged at 61 cents. This indicates a 3.2% year-over-year decline. For the Sep-end quarter, management projects pro-forma FFO per share of 58-62 cents.

Nevertheless, Aimco focuses on having a solid portfolio, diversified in terms of geography and price point. This might help in partly avoiding its exposure to competitive new building supply. Additionally, the company is anticipated to gain from favorable demographics, household formation, recovering economy and job-market growth.

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 +0.18%.

Zacks Rank: Aimco carries an unfavorable Zacks Rank of 4 (Sell).

Stocks That Warrant a Look

Here are a few other 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:

Ashford Hospitality Trust Inc. (NYSE:AHT) , scheduled to release earnings on Nov 1, has an Earnings ESP of +7.14% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Omega Healthcare Investors, Inc. (NYSE:OHI) , slated to release third-quarter results on Nov 5, has an Earnings ESP of +0.66% and a Zacks Rank of 3.

Park Hotels & Resorts Inc. (NYSE:PK) , set to report its quarterly numbers on Nov 1, has an Earnings ESP of +0.87% and 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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