Apartment real estate investment trust (“REIT”) Apartment Investment and Management Company AIV or Aimco is expected to report first-quarter 2015 results on Apr 30, after the market closes.
In three of the trailing four quarters, Aimco posted positive earnings surprises with an annual average surprise of 0.55%. The Zacks Consensus Estimate for the first quarter funds from operations (“FFO”) per share is currently pegged at 51 cents.
Let’s see how things have shaped up for this announcement.
Factors to Consider This Quarter
2014 was a good year for Aimco which witnessed disciplined cost control, steady rent improvement and strong same store net operating income (“NOI”) growth. For 2014 as a whole, expenses climbed 2.3% to $213.5 million; while for first-quarter 2014, expenses declined 7.1% sequentially to $50.9 million.
In fact, with Aimco concentrating on efficient operations, the compound annual growth rate (“CAGR”) for its property operating expenses before taxes, insurance, and utilities over the past seven years (2008–2015) have been zero. In 2014, property operating expenses before taxes, insurance, and utilities inched up around 80 basis points (bps). Nevertheless, we expect the disciplined cost-control initiatives to get reflected in first-quarter 2015 earnings.
In 2014, average rent per apartment home moved up 3.7% to $1,428 as against 2013. In fourth-quarter 2014, average rent per apartment home rose 1.2% sequentially to $1,457.
On the other hand, Aimco has a notable exposure to the Washington DC market, which, recently, exhibited signs of stress due to dampening of the metro area economy led by a rise in new supply and impact of sequestration and furloughs. Further, Aimco competes with other housing alternatives such as rental apartments, condominiums and single-family homes that are available for rent, as well as with new and existing condominiums and single-family homes available for sale. This leads to higher competitive pressure for the company.
Aimco’s activities during the quarter were inadequate to win analysts’ confidence. Consequently, the Zacks Consensus Estimate remained stable at 51 cents per share over the last 7 days.
Earnings Whispers
Our proven model does not conclusively show that Aimco will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.
Negative Zacks ESP: That is because the Most Accurate estimate and the Zacks Consensus Estimate stand at 50 cents and 51 cents per share, respectively. This translates into an Earnings ESP of -1.96%.
Zacks Rank #3: Aimco’s Zacks Rank #3, when combined with a negative Earnings ESP, makes surprise prediction difficult.
Note that, we caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
You could consider stocks in the REIT sector that have the combination of a positive Earnings ESP and a favorable Zacks Rank, and are hence poised for an earnings beat this quarter:
FelCor Lodging Trust Inc. FCH carries a Zacks Rank #3 and has an Earnings ESP of +20.00%. It is scheduled to report results on Apr 29.
Armada Hoffler Properties, Inc. AHH carries a Zacks Rank #2 and has an Earnings ESP of +5.88%. It is scheduled to report results on Apr 30.
Essex Property Trust Inc. ESS has an Earnings ESP of +0.45% and a Zacks Rank #3. The company will report first-quarter results on May 6.
Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
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