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No, The Stock Tesla Is Replacing In The S&P 500 Is Not Down 85%

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No, The Stock Tesla Is Replacing In The S&P 500 Is Not Down 85%

Apartment Investment and Management Co (NYSE: AIV) shares traded lower by 85.7% on Tuesday ahead of the stock being kicked from the S&P 500 and replaced by Tesla Inc (NASDAQ: TSLA) next Monday.

But while it may seem at first glance that institutional investors are dumping the stock in droves, Apartment Investment shares are actually only down because it completed a spin-off of its income-generating real estate investment trust business.

The company associated with the ticker AIV will now be called “Aimco,” and shareholders of that ticker received distributions of brand new shares of Apartment Income REIT Corp. (NYSE: AIRC) on Tuesday. So while it may look like AIV shares are tanking, the spin-off is similar to a stock split in that value is not actually lost even though the share price drops.

“$AIV is not down 85%, it completed its spinoff of $AIRC. It's actually trading green on [an] adjusted basis,” said Dennis Dick, co-host of Benzinga’s PreMarket Prep.

Related Link: JPMorgan Says Tesla's Valuation Is 'Difficult To Conceive In Any Imagined Scenario'

The Math: On Monday, shares of Apartment Investment and Management closed at a price of $40.34. On Tuesday morning, the ticker AIV was down to just $5.45, but the newly created ticker AIRC was trading at $37.29, Since shareholders of AIV received shares of AIRC on a one-to-one basis, the combined share so the two new companies added up to $42.74, about 5.9% above Monday’s closing price of the parent company.

Benzinga’s Take: Aimco and Apartment Income REIT may see some volatility associated with their exit from the S&P 500 next Monday, but that has little to do with Tuesday’s spin-off. Tesla will be by far the largest company ever to be added to the S&P 500 next week, so traders are bracing for some potentially extreme market-wide volatility as institutional investors are forced to adjust their weightings.

 

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